One commonly-asked question when considering filing for Chapter 7 or Chapter 13 bankruptcy is whether potential filers should inform their respective creditors of their intent to file for bankruptcy? It can be a hard decision to make when it comes to deciding what is acceptable to disclose prior to filing for bankruptcy.
The short answer is: it depends. It depends on the circumstances of the filer, the type of debt involved and the relationship the filer has with a specific creditor.
Working with the Creditor or Lender
Many times, informing a creditor of a person’s financial situation. The fact they have contacted a bankruptcy attorney may cause the lender to work with the filer to restructure the debt.
Ultimately, a lender wants payment and does not want to lose the possibility of being paid. The lender may be willing to negotiate the debt or enter into a payment plan with the filer. This assistance could help avoid the need for filing a bankruptcy case.
Raising a Red Flag
One major downside to informing creditors of the intent to file for bankruptcy is the risk of alarming the creditor. It may raise a red flag that the creditor will end up not being paid for the debt and the creditor may instead accelerate collections activities. If the creditor or lender can get a judgment and wage garnishment before bankruptcy is filed, this judgment may then stay with the filer even after the bankruptcy is over.
It is possible that the filer has only just begun discussions with a bankruptcy attorney and does not intend to file for months. What good does it do to tell the lender now, only to risk having to face collections proceedings before bankruptcy? If the person does end up filing for bankruptcy, all creditors will be notified by the court. At that point, the creditor can pursue its debts through the bankruptcy process.
Proceedings Will Not Stop
Ultimately, it does not do any good to alert the creditors of the fact that the potential filer has spoken with a bankruptcy attorney. Some people are under the mistaken belief that simply telling the lender that a case will be filed is enough to scare them into stopping collection activity. However, no legal significance is given to the fact that an attorney has been hired.
The only event that is significant is the actual filing of a case. At that point, the automatic stay goes into effect and creditor collection efforts must stop.
Many times, the when people are significantly past due on their debts, lenders may escalate collections. They may get to the point of harassing the customer to pay off the debt.
The customer may advise the creditor of an impending bankruptcy case just to get these collectors off of their backs. However, odds are that simply telling the lenders the debtor has hired an attorney will not do much to hold off the collectors.
If the communication has gotten to the point of harassment, a Fair Debt Collections Practices Act claim (FDCPA) may be filed. The FDCPA was instituted to protect debtors facing consumer debt collections proceedings against unfair or threatening debt collection practices. One of these practices includes harassing or threatening communications.
If the debtor believes that FDCPA violations have occurred, he or she can communicate this fact to the bankruptcy attorney who can always follow the FDCPA procedures to submit a claim against the creditor. If the debtor does not wish to go through with an FDCPA claim, he or she can at least give the name of his or her bankruptcy attorney and tell the creditor that any further communication needs to go through the attorney and not the debtor.
Reach Out to the Law Office of Marilyn D. Garner for Assistance With Creditors
An experienced Texas bankruptcy lawyer can help you with any questions you may have about filing and your credit. Please call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you.