Bankrupt Debtors – How to collect from a debtor in bankruptcy

        Although federal bankruptcy laws allow a bankrupt debtor to seek relief and discharge of their debts through a Chapter 7 filing, debt collectors and collection agencies may contest discharging of consumer debt under some circumstances.  The most important aspect of contesting a discharge of debt is to be aware of the need for timeliness in filing adversarial proceedings with the court – within 60 days of the first meeting of creditors. Making the decision on whether to file a non-dischargeability action with the bankruptcy trustee rests on several considerations:

• Is the debt secured or non-secured?
• Was the debt fraudulently incurred?
• Is there an existing judgment against the debtor?
• What are the circumstances of the debtor’s bankruptcy filing, and the amount of the debt?
• Does the debtor have either income or assets that could be used to pay the claim, if the claim of non-dischargeability was successful?
• Are there other non-dischargeable claims, such as back tax obligations or government-backed loans that will receive priority?

Most creditors will find that bankruptcy laws favor the bankrupt debtor, particularly in regards to consumer debt such as credit cards or store credit, so pursuing a non-discharge ability action becomes a cost / benefit decision.  In general, the creditor must be able to assert that an application for credit was submitted with fraudulent information, or that available credit was utilized with no intent to repay the debt.  In some instances, it is also possible to file a challenge against specific charges, rather than the entire balance.

In any case, once a debtor has filed under Chapter 7 bankruptcy laws, collection efforts must cease, and any remedies must flow through the bankruptcy trustee.