Many of those who are facing financially tough times right now are stressed out even more by creditors who call non-stop. Creditors push the boundaries on what they may and may not do to collect a debt.
For example, here is a voicemail a client of ours emailed us the other day. Our client allowed us to post this voicemail so others could see they are not alone with the constant and harassing phone calls.
After receiving the voicemail we called the number back and spoke with someone with the company. They explained they didn’t know our client had filed bankruptcy. However, we confirmed their mailing address was accurate and explained we had previously sent proper notice of the bankruptcy. We then let them know they were violating the Fair Debt Collection Practices Act and any further attempt to collect on this debt would be met with a motion for sanctions.
They told me they didn’t do anything illegal and, after explaining I had a recording of the voicemail, they hung up on us. Before doing so, they explained they would notate in their system that our client had filed bankruptcy and she would not be contacted again. To date, she hasn’t received another call.
Regardless, this phone call shows some creditors will do whatever it takes to collect on debts. If you believe a debt collector is overstepping the boundaries let them know that they are violating the Fair Debt Collection Practices Act. It is important to keep detailed notes about who you spoke with (including their identification information), what time they called and what they said. Without this information it is difficult to be successful in a motion for sanctions against the creditor.
Property that is surrendered or was not protected under the bankruptcy code exemptions is fair game for the bankruptcy Trustee. Once a debtor has filed bankruptcy, his estate becomes that of the bankruptcy court and the bankruptcy Trustee.
At that time, the Trustee determines if there is any value or potential value in any of the assets of a bankruptcy case. If the property proves to be worthless, with no beneficial value, or the value is not worth the hassle of selling the property, the Trustee will submit a motion to abandon the property. Once an asset is abandoned in bankruptcy, it is released from the protection of the bankruptcy automatic stay. At this point, the property may be sold, transferred, or used by the debtor or other parties of interest, such as the mortgage company. Abandonment can be automatic if a Final Decree is issued on a case which officially closes a bankruptcy (this is after the discharge is issued.) A final decree labels the property for abandonment because the case has been closed and the Trustee has issued a non-distribution of assets.
To better illustrate, lets take a look at a common example. A debtor surrenders a home in bankruptcy and must forfeit a piece of land that he was not able to protect with his exemptions. The Trustee reviews the estate and decides to hire a real estate agent. The real estate agent explains that due to the market’s condition, the land would take over a year to sell, but the house may sell in 6 months. The Trustee decides to put both on the market for 6 months. Debtor receives a discharge but not a Final Decree. The time passes and the Trustee has not even received an offer on the land or house. To cut his losses, he decides to file a Motion to Abandon on the land and notifies the creditors there are no assets to be disbursed. The debtor receives a Final Decree a month later. The house is considered abandoned by the receipt of the Final Decree and the land becomes the debtor’s once again. The mortgage company sets up foreclosing proceedings on the home and months later, the home forecloses and the debtor’s name is removed from the deed.
The bottom line is, when a Trustee abandons property they are notifying the bankruptcy court, creditors and the bankruptcy debtors that they no longer have an interest in the property.
When the original creditor goes unpaid for a significant amount of time, the debt goes into what is called “collections.” Many of us have heard of these agencies but are somewhat confused as to what exactly constitutes a collection agency. A collection agency is an outside organization helping original creditors to collect on unpaid debts. Both the original creditor and the collection agency only have one thing in mind and that is to get the money that’s owed from the Debtor. An original creditor such as a hospital, understand that the longer the bill goes unpaid, the less likely it is that they will actually recover the debt. This is why it is important to original creditors to send the debt into collections as soon as a significant amount of time has gone by. This is truly the primary purpose of a collection agency which is to contact the Debtor with letters, phones calls, and other forms of communication in hopes of acquiring the debt. Representatives of these agencies should immediately state their name and what creditor they are calling on behalf of. If they do not, you have the right to ask where they are calling from and what debt they are trying to collect on.
There are at least three different types of collection agencies, all of those with the same goal, which is to recover the amount of money owed by the Debtor. First party collection agencies are often representatives from the original creditor, therefore it is not considered an outside agency. These first party agencies will try to collect on the debt for several months in hopes of maintaining a more constructive customer relationship, since they are working for the original creditor. As previously mentioned, once a significant amount of time has gone by, the original creditor or first party agencies will eventually pass the debt along to a collection agency.
Third party agencies are those that are not representatives or associated with the original contract. This is often where the term collection agency comes from, as these are representatives trying to collect on the debt for the original creditor. The original creditor may assign specific accounts of various Debtors to the agencies. It will most likely only cost the original creditor communication fees for the agencies to contact the Debtors, unless the debt is successfully recovered. If the debt is recovered and the Debtor agrees to pay the balance, then it depends on the contract between the creditor and the collection agency. The agreement between the two determines what percentage each will obtain.
The last type of collection agency can be referred to as a “Debt Buyer.” These Debt Buyers basically purchase debts from original creditors for pennies on the dollar. Their goal is to collect the full balance from the Debtor, which may include interest. These debt buyers come in the form of regular companies or may be reorganized as law firms. They can try to collect the debt by reaching out to other collection agencies if necessary. This is because the debt buyer has actually purchased the charged off or delinquent debt from the original creditor. Unlike first party agencies, the debt buyers are not as concerned about the relationship they maintain with the Debtor. Therefore, they tend to be the ones who call at all ours of the day and night, use harassing techniques and are beyond rude on the phone.
Collection agencies are required to abide by the Fair Debt Collections Act, so be sure if you feel you are being harassed or abused by creditors in an unfair manner, you educate yourself on what you need to do or contact a bankruptcy lawyer to learn more about your rights. If you file a bankruptcy the the bankruptcy filing enacts the automatic stay which prevents form creditors and collection agencies form still trying to contact you.
With the ever improving online banking that is available through most banks, it is possible to pay almost all of your bills without ever stepping foot outside of your home. There is no doubt filing bankruptcy can impact every situation of everyday life, but what about paying your bills? What happens if you have everything automatically drafted out of your account each month? Will that continue?
It depends. If your home mortgage or car payment is automatically drafted prior to your bankruptcy filing, then during the duration of the bankruptcy the mortgage company or vehicle creditor will likely stop automatic drafts and require you to manually pay your bill, or will only accept a mailed-in payment. When you file bankruptcy there is an “automatic stay” that goes into effect which states that your creditors cannot contact you for a payment. Many lien holders (such as your mortgage company or vehicle creditor) would rather play it “safe than sorry” and will code your account as being in active bankruptcy and will not automatically draft payments. In some cases, the creditor will not even send monthly statements. If you wish to continue receiving monthly statements, contact the creditor to let them know. They may require you to send in written permission from your bankruptcy attorney, which is common practice with creditors.
If you have your utilities automatically drafted from your bank account, then they will likely continue. If your automatic drafts are for credit cards and other debts, once you file the bankruptcy they should automatically stop since the debt is included in the bankruptcy. Those creditors should not be receiving payments at all – whether automatic draft or otherwise – due to the automatic stay.
Therefore, after you sign your petition and your bankruptcy is filed, it is imperative to make your monthly payments on your secured debts. If your payment is normally automatically drafted, do not think something is wrong in the transaction and sit and wait for it to happen. Go ahead and contact your creditor to find out the best way to make the payment (whether they will accept the payment over the phone or if you will have to mail in your payment). Discuss any confusion you may have with your attorney. Your bankruptcy is one step towards obtaining your financial freedom; you do not want to file bankruptcy and then become behind on your vehicle or mortgage due to the fact that they no longer just took their payment like they were before your bankruptcy filing.
If before filing for bankruptcy you had automatic drafts from your bank accounts to pay other bills then this may stop when you file the bankruptcy. It’s obviously important to know that these automatic drafts may stop because we want to make sure you do not get behind on things like house payments, car payments and other important bills you have.
Creditors may stop the automatic draft(s) because they want to make sure they don’t violate the automatic stay enacted by filing the bankruptcy. They don’t want to accidentally charge you money that has been wiped out in the bankruptcy. However, even if you don’t include a debt in your bankruptcy they may still stop the automatic draft(s) for precautionary measures.
If you file bankruptcy then you can contact the creditor and get them to begin to send you paper statements if necessary. We talk more about how to get statements again after filing bankruptcy in another blog post.
However, you may not be able to get automatic drafts set up right away after filing the bankruptcy. Be aware of this and be sure to plan accordingly.
When you have filed your bankruptcy petition and receive a case number, an automatic stay is enacted to protect you under the bankruptcy code from creditor contact, lawsuits, repossessions, foreclosures, etc. In turn, this limits the contact a creditor may have with you.
If a creditor violates the automatic stay then they can be sanctioned by the federal court system. In order to avoid this, many creditors choose to stop sending anything that can be viewed as a collection attempt.
After your bankruptcy is filed and the creditors are notified, they are no longer allowed to send you bills trying to collect on a debt. Typically, the automatic stay is a good thing because it means the harassing phone calls and collection attempts will stop. However, many creditors will stop all forms of communication, even if you have agreed to keep paying on the debt, due to fear of violating the automatic stay. Therefore, it is important that you remember to continue to make your payments (on debts not being wiped out in the bankruptcy and regular utilities) even if you do not receive a statement each month.
If you want to continue to receive statements then there are a couple of things that you can do to try to help restart this process.
First, you can contact the creditor and explain that you filed bankruptcy and, despite that, you would like to still receive monthly statements from that creditor. Some creditors will agree to then send you monthly statements.
Second, if the first option doesn’t work then you can get the assistance of your bankruptcy lawyer. Once your bankruptcy is filed, request a letter from your bankruptcy lawyer that will give a creditor permission to send you statements or allow for other payment arrangements. You will need to do this usually for a mortgage company where a car finance company will be sending a reaffirmation agreement, so making payments and receiving statements should not be difficult. Other secured creditors, such as furniture companies, jewelry stores, or electronic stores, may require a letter from your lawyer as well.
The bottom line is, you may stop receiving statements or bills after filing the bankruptcy because the creditors don’t want to violate the automatic stay. Despite this, it is critical that you still make your payments on things like house, cars and monthly utility payments.
Once you default on a payment to a creditor, they then have their legal rights to pursue means of collection from you. When you have something secured, such as a house or a car, if you ignore their repeated attempts of collection, the creditor can simply come and take back what was theirs in the first place; but what if it’s for a credit card or other unsecured debt? Many people have the misconception that the credit card companies cannot do anything to them personally and are just “out” on the money that is owed to them. Wrong!
Once you default on a credit card, the credit card company will send you to a collection agency who will attempt to collect the debt. When they cannot collect the debt after several attempts they will “charge off” the debt and send your account to an attorney (if they choose to, not all defaulted credit cards are sent to attorneys). The law firm may make several attempts to collect the debt as well and, after not being able to collect on the debt, they will file a civil complaint with the court for a judgment on the debt; meaning that it is court ordered that you pay that debt back.
Once the judgment is against you, the attorneys for the credit card company will send you something called a Notice of Right to Have Exemptions Designated. At this time you will list your personal property and attempt to protect it from the creditors whom are suing you. Your personal property in this matter would consist of homes, vehicles, bank accounts and such. Most people will either fail to fill out the paperwork or do so improperly. If not completed correctly or if all of your property is not protected, you will receive something called a Writ of Execution which allows the sheriff will come to seize any unprotected assets. So what does this have to do with your bank account? If you did not properly exempt your bank accounts the sheriff will contact your banking institution(s) and have your account(s) frozen.
Filing bankruptcy will take care of the debt of the judgment but does not automatically take care of any repercussions of the judgment. In the example of a frozen bank account, your bank account would not be unfrozen simply from filing a bankruptcy; the sheriff who ordered the account to be frozen must take additional steps. The sheriff must receive proof of your bankruptcy filing and contact the banking institution and order the account to be unfrozen. That could take several days which means you could go days without access to money within your bank account.
Although a creditor must take several steps to freeze a bank account – they are able to freeze a bank account after they obtain a judgment if the proper steps are not taken to ensure your property is protected.