What Happens to Collection Accounts After You File?

Collection accounts can make an already difficult financial situation feel even more overwhelming. A debt that has gone to collections can create problems beyond the balance itself. Collection calls and letters can become a regular part of your life, and some debts eventually result in a lawsuit.

Bankruptcy might put a stop to many of the collection problems that have been building up. It does not mean every collection account simply disappears, though. The result depends on the debt involved, the type of bankruptcy you file, and whether that debt is eligible for discharge.

Collection Activity Generally Stops After Filing

Once your bankruptcy case is filed, an automatic stay generally takes effect. In many cases, that means creditors and collection agencies must stop calling you for payment. It can also stop certain lawsuits and wage garnishments.

That break from collection activity can be a welcome change when you have been dealing with it for months. Keep in mind that the automatic stay has exceptions. In some circumstances, a creditor can ask the bankruptcy court for permission to continue collecting a debt. Your attorney can look at the specific collection activity you are facing and explain what the bankruptcy filing would mean for it.

What Happens to the Debt?

Stopping collection activity and eliminating the debt are two different things.

Many common unsecured debts, including certain credit card and medical debts, may be dischargeable in bankruptcy. When you receive a discharge, you’re no longer legally liable for the debt and creditors can no longer contact you about the debt.

However, bankruptcy doesn’t eliminate every type of debt. Creditors might be barred from contacting you while your case is in flux, but you’ll still be responsible for the debt, even if your bankruptcy is successful. And if the debt is a secured debt, the creditor can take the collateral property from you.

Knowing whether or not your debts are eligible for discharge helps you determine if bankruptcy will help your situation or not.

What About a Collection Lawsuit?

A collection account that has already progressed to a lawsuit does not necessarily mean bankruptcy is no longer an option.

The automatic stay can stop many debt-related lawsuits and collection actions once you’ve filed. Keep in mind, though, all situations are different. Speak to your attorney about what you should expect once the automatic stay goes into effect for your case.

A pending collection lawsuit should never be ignored. An attorney can review what has already happened and explain how bankruptcy may affect the situation.

What Happens to Collection Accounts on Your Credit Report?

The bankruptcy filing and the collection accounts associated with your debts can affect your credit history. Filing bankruptcy does not mean every collection account will simply disappear from your credit report.

The bankruptcy court does not correct inaccurate information reported by credit reporting agencies. When information is inaccurate, you may need to address it separately with the appropriate credit reporting agency.

For someone struggling with overwhelming debt, however, the bigger issue may be whether the underlying financial problems can be resolved. Looking only at today’s credit report does not necessarily provide a complete picture of your financial future.

Get Answers Before Making a Decision

Debt collection can leave people feeling trapped, particularly when they are unsure whether bankruptcy is the right answer. You may be looking for relief while still having serious questions about what filing would mean for your finances, property, and future.

Those questions deserve clear answers. We can review your debts and collection activity, explain the bankruptcy options that may apply to your circumstances, and help you understand both the potential benefits and limitations of filing.

A consultation does not require you to make an immediate decision. It gives you an opportunity to understand your situation and determine what steps may make sense for you.

If you would like to learn more about your options, contact the Law Offices of Robert M. Geller to discuss your circumstances.