Debt collection efforts can be very disruptive to people’s lives. Creditors might call people at home or work. They may file lawsuits against those who have large balances due. They may even seek to secure control over valuable assets
Individuals who have experienced financial challenges recently may struggle to make payments on their debts. The collection efforts that follow could lead to high stress levels and even worse financial challenges.
Some people trying to improve their circumstances when dealing with aggressive collection activity may consider filing for personal bankruptcy. How can bankruptcy benefit those concerned about collection efforts, such as litigation, foreclosure and regular collection calls?
Halting collection activities
When people file for bankruptcy, collection efforts typically stop. The courts issue an automatic stay that requires creditors to cease their collection efforts.
Until the courts grant a discharge or dismiss the bankruptcy, creditors typically need to halt all collection efforts. Even lawsuits, repossession and foreclosure have to wait until after the completion of a bankruptcy.
Allowing for loan modification
Lenders worried about borrowers discharging debts or choosing not to reaffirm secured debts may agree to work with people who have fallen behind on their obligations.
Especially in a Chapter 13 bankruptcy filing, it may be possible to modify loan terms to make them more sustainable. People can lock in lower interest rates, extend the repayment period and even reduce their monthly payments, thereby making future collection efforts less likely.
Discharging certain debts
A successful bankruptcy filing culminates in the discharge of eligible debts. People can eliminate the obligation to continue paying credit card balances or medical debts.
While not every debt is eligible for discharge, the ability to discharge some financial obligations can make it easier for people to manage the debts that are not eligible for discharge after the bankruptcy. People who eliminate large debts and modify others can more easily balance their budgets and avoid future financial challenges.
Individuals enduring aggressive collection efforts that affect their stress levels and daily lives may want to discuss personal bankruptcy and evaluate their options. Choosing to file bankruptcy can help prevent financial challenges from spiraling out of control and can help provide people facing frustratingly aggressive collection activity with relief.