Individual consumer bankruptcy cases can resolve most types of common debt for filers, including credit card debts, medical bills, mortgages, old utility bills, bounced checks, personal loans and car loans, among others. Many people are wary of resorting to bankruptcy because of the negative hit you can take to your credit when you file. The truth is, the damage to your credit can vary from a mild decrease to about a 200-point loss, depending on how high your score is before you file. If you are in the position of needing to file for bankruptcy, it’s likely that the impact on your credit score will be greatly outweighed by the benefits of the permanent discharge of your debts. You may find that your credit profile is quite resilient. While a bankruptcy can generally remain on your credit profile for several years, your credit score may return to the upper 600’s or even lower 700’s within twelve to eighteen months. In addition, you will be a very attractive credit risk to many lenders due to the “Pinocchio Effect”. Essentially, new potential lenders will see that all or most of your previous debts were discharged in the bankruptcy proceeding. They may conclude that they no longer must compete with those pre-existing creditors to get paid by you. To them, like in the Pinocchio story, you will have very few “strings” tying you to previous debts. Further, they will see that you will not be able to file for bankruptcy relief again for several years. In short, if you fail to pay them they will have several years to pursue collection remedies against you and there will be nothing that you could do about it. That is why some people file for Chapter 7 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common kind of individual consumer bankruptcy filed in the U.S. The process of this kind of bankruptcy works to liquidate your non-exempt assets (properties) in exchange for the permanent discharge of your debts. With the guidance and legal support of Behm Law Group, Ltd., you can work through a Chapter 7 bankruptcy in Fairmont, MN and the surrounding area successfully.
Injunctive Mandates
When you file for Chapter 7 bankruptcy, the automatic stay injunctive mandates of 11 U.S.C. §362 are immediately put into place and most of your creditors are prevented from taking further collection actions against you until your bankruptcy case has concluded. When your case has concluded the automatic stay mandates of 11 U.S.C. §362 become a collective permanent bar, under 11 U.S.C. §524, against most of your creditors from collecting on the debts that you listed in your bankruptcy case. However, after your case has concluded certain creditors that you may have wanted to keep and certain creditors whose debts were excepted from the chapter 7 discharge will be permitted to interface with you again regarding payment of their claims.
What Debts are Discharged
Debts that would typically not be discharged because they are excepted from the general discharge provisions, as per 11 U.S.C. § 523 (Exceptions to Discharge), include so-called priority debts such as some tax debts, child support debts, debts related to alimony, debts related to criminal fines, debts related to personal injuries you may have caused while intoxicated and other non-priority debts such as student loans. Therefore, creditors such as the Internal Revenue Service and the State of Minnesota could continue collection actions against you when your case has concluded. Other creditors who have claims that you wanted to retain and for which you may have executed a reaffirmation agreement, also would be able to contact you regarding the ongoing payment of their claims. Such creditors would include your mortgage lender, vehicle lender, etc. Creditors whose claims were discharged in the chapter 7 proceeding, however, will be barred from contacting you under 11 U.S.C. § 524. They will be permanently prevented from taking legal action to collect on the discharged debts. If they attempted to take legal action against you or pursue other activities to collect the debts, you could sue them and they could be punitively sanctioned quite severely by the bankruptcy court.
Chapter 7 Discharge Violations
There are times when creditors may violate the discharge order and pursue collection activities on the debts that were discharged in your bankruptcy case. Some examples of discharge violations could include:
- A creditor sells your debt to a debt buyer and that debt buyer contacts you to demand payment
- Your credit report still lists the discharged debt as “past due” or “delinquent”
- Some of your property is repossessed
- A creditor that may have either foreclosed on your house or repossessed your vehicle continues to pursue you for any remaining debt following the re-sale of the foreclosed home or repossessed vehicle
Essentially, any creditor action on a discharged debt is a violation of the discharge order. What’s important to understand is which of these actions are illegal violations and which are categorized as a mistake or a lack of knowledge. For example, if a debt buyer is sold your discharged debt but wasn’t notified of the bankruptcy discharge, the bankruptcy court may consider their effort to collect as an innocent mistake due to lack of knowledge.
If you are considering filing for Chapter 7 bankruptcy in Fairmont, MN or the local region, contact Behm Law Group, Ltd. today at (507) 387-7200 or email stephen@mankatobankruptcy.com for more information about the legal effects and benefits of the discharge order and the handling of different ebts.
