When you file for bankruptcy, one of the greatest benefits is an end to the constant letters and phone calls from your creditors. Once those bankruptcy papers are submitted, in most cases, your creditors must stop all attempts to collect debts, including those harassing phone calls. But, what if your creditor decides to sell off your debt to someone else after you file your bankruptcy? Does the process start all over again? Do you still have to pay the debt? Here’s what you need to know.
The Selling of Debts
When you owe money to a creditor, the creditor can choose to sell the debt just like any other asset. Creditors who don’t want to wait for payment during a Chapter 13, or who believe they won’t get paid at all, can sell the debt to receive payment right away. However, they will often have to settle for a lower sum.
Once the debt is sold, the creditor who purchased the debt now takes the place of the original creditor. The new creditor can attempt to collect the amount of the original debt. From the filer’s perspective, you still owe the debt. The sale of the debt has minimal effect on your bankruptcy, as long as the new debtor is appropriately notified of the case.
Chapter 7 vs. 13
In most cases, creditors will take a complete loss when a debtor files Chapter 7. However, in a Chapter 13 bankruptcy, debts are repaid according to a payment plan that extends over a period of years. Therefore, Chapter 13 debts are typically the ones that are sold. Either the original creditor or the new creditor must notify the court of the change of status.
Debts Sold Before Filing
What if one of your debts was sold to a new creditor before you filed your bankruptcy paperwork and you didn’t know until after your case was filed? In some cases, the original creditor will notify the new debtor of the change in status. That means it would still be covered as part of your case and probably get discharged during your bankruptcy.
However, the original creditor is under no obligation to notify the new creditor, so they may not bother, or they may not do it promptly. To be on the safe side, you should formally add the new debtor to your bankruptcy schedule yourself or speak to your lawyer about notifying the new debtor yourself.
Debts Sold During Your Case After Filing
Your current creditors should not sell your debt once they receive notice that you’ve filed for bankruptcy. If they do, they should at least inform the purchaser of your case. However, it still happens occasionally, whether on purpose or by accident. Sometimes, a debtor may sell your debt after you file, but before they receive notice.
In either case, you should take responsibility for ensuring that the new debtor is notified; don’t rely on the original debtor. Amend your bankruptcy schedule to formally add the new creditor.
Once your bankruptcy case is settled, the court issues a decree stating that your debtors can never again attempt to collect debts that were discharged by your debt. Once that decree is granted, your creditors can no longer legally sell the discharged debts. If a debtor contacts you in an attempt to collect a discharged debt, you should forward a copy of your discharge decree to the debtor. That should end any further contact, but if the creditor continues to bother you, you should consult your lawyer about taking court action.
It is imperative that creditors who purchase your outstanding debts are notified promptly about your bankruptcy case. If they aren’t notified on time, the debt may not be discharged at the end of your case. If you have any questions about debts that are sold before, during, or after your bankruptcy, don’t hesitate to contact us.