As your unpaid bills accumulate, creditors may intensify collection efforts by calling daily, mailing notices or threatening legal action. Some collectors may even contact your workplace or relatives. This constant pressure can feel overwhelming and over time, affect your health, trigger anxiety or lead to burnout.
At this point, you may wonder whether filing for bankruptcy can put a stop to this disruption. In many cases, bankruptcy impacts the way creditors can contact debtors.
What bankruptcy might change
Filing for bankruptcy may trigger an “automatic stay” — a court order that immediately stops most collection actions, including calls, lawsuits and wage garnishments. However, if you’ve recently had a bankruptcy case dismissed or filed in bad faith, such as hiding assets or lying on your bankruptcy forms, the court may limit or deny the stay.
Still, even with the automatic stay-in-place, bankruptcy does not erase every type of debt. Some financial obligations remain non-dischargeable, including:
- Domestic support obligations
- Recent tax debts
- Most student loans
That said, bankruptcy may still help discharge or reorganize other types of unsecured debt. Depending on your specific circumstances, you may file either Chapter 7 or Chapter 13.
What are Chapter 7 and Chapter 13?
Chapter 7, often referred to as ‘liquidation’ bankruptcy, involves selling off some assets to pay debts. This process can eliminate unsecured debts and stop collection efforts. On the other hand, Chapter 13 is referred to as a ‘reorganization’ bankruptcy that allows debtors to keep assets while adhering to a repayment plan. This process can help lower your monthly payments.
To qualify for Chapter 7, you must pass a means test, which compares your household income to the state median and considers your allowable expenses. If your income falls below the threshold, you may be eligible to discharge certain unsecured debts. For Chapter 13, you must have a regular income, and your total unsecured and secured debts must stay within court-set limits. This type of bankruptcy filing allows you to repay debts over three to five years and may help you keep property like a home or car by catching up on missed payments.
Bankruptcy involves serious legal and financial decisions, and it is not always the right solution for everyone. While it offers significant benefits, it also carries long-term consequences, including:
- Lowering your credit score and stay on your report for up to 10 years
- Requiring debtors to sell non-exempt property, depending on state exemption laws.
That is why speaking with qualified bankruptcy professionals is essential before deciding how to proceed. They can explain how bankruptcy may apply to you, identify which debts it covers and recommend which options fit your financial situation or priorities.
If nonstop calls and letters disrupt your daily routine, bankruptcy can provide a way to stop the harassment. It can also restore your financial stability and help you regain control over your future.