When a debt goes into collections, there are limits to what debt collectors can do to collect on a past due bill. The Federal Trade Commission lists on its website some of the prohibited tactics.
The Fair Debt Collection Practice Act prohibits collectors from calling you before 8 a.m. in the morning or after 9 p.m. at night. In addition, a debt collector cannot misrepresent the amount owed or threaten an arrest if you do not pay your debt. Unfair practices such as trying to collect interest and penalties when not included in a contract are also against the law.
Even with these restrictions in place, bills that have gone to collections may mean a mailbox full of collections notices and phone calls from different collections agencies all day. Chapter 7 bankruptcy can make it stop.
Filing a petition for Chapter 7 bankruptcy with the court provides an “automatic stay” that halts most collection activities.
The stay is often only for a short time. But the filing is enough to get the stay. You do not need to request the stay or receive an order from a judge. When the stay is in effect, creditors generally must stop calling to demand payment and cannot start a lawsuit or wage garnishment. A clerk with the bankruptcy court will notify all the creditors listed in the bankruptcy petition.
The next step in the bankruptcy case is a meeting of creditors that generally occurs within 60 days. Questions from the bankruptcy trustee and creditors may address eligibility under the means test and assets and property.
A bankruptcy attorney can guide you through the Chapter 7 bankruptcy process after reviewing your individual circumstances.
Source: U.S. Courts, “Liquidation Under the Bankruptcy Code,” Accessed August 4, 2014.