If you are a creditor or lender, either secured or unsecured, affiliated or private, you have probably aware of the risks of pursuing a debt from a consumer. In the event that you inadvertently step over the line, even for a second and in the most minimal of ways, consumers are highly encouraged to throw a lawsuit at you for collections violations. Losing such a case would not only stop you from collecting on their loan but could also wind up with you paying them instead.
So what can you do if one of your consumer clients files for bankruptcy? Are you out of luck? Or are there steps you can take and rights you can fight to uphold as a creditor without getting into legal trouble?
What You Can Do As a Creditor During Client Bankruptcy
- Debt discharge denial: When someone goes into bankruptcy, the primary goal will be for them to discharge as much debt as they possibly can, including the money that they owe you for your loan. You will have a brief window of opportunity – usually around 60 days – after the bankruptcy is declared to file a petition to block your debt’s discharge. For the court to consider your petition as valid, you will usually need to prove that some unlawful or negligent actions on behalf of your client caused them to fail in their payments.
- Non-automatic stay: A consumer filing for bankruptcy will create an automatic stay on their accounts, or an injunction that prevents creditors from collecting on debts or attempting to do so. This is done without any legal action, thus the term automatic. Depending on when the bankruptcy filing occurred and what else was going on, such as a foreclosure or trial, you can ask the bankruptcy court to remove the automatic stay, at least for your own collection purposes.
- Chapter 13 dividends: If your client is filing for Chapter 13 and proposing a repayment plan for their debts, you have a right to review it. Depending on what you find in their repayment plan, you may be able to challenge it by proving that it is either entirely unrealistic for you to expect that you will eventually be repaid by the individual or drafted in bad faith, or with the intent for it to fail.
You can, of course, also team up with a trusted Fort Worth consumer collections attorney from The Pritchard Law Firm. With our 45+ years of combined experience, we can discuss your case in a free consultation to determine if you should file a lawsuit in defense of your interests. Call (817) 285-8017 for more information.