So you’ve filed a bankruptcy and just received your discharge notice in the mail. That means your case is over, right? Not so fast. There are many things that can drag a case out long after the bankruptcy court issues the discharge of debts.
1. Some Debts Survive a Bankruptcy
A discharge means that you have been relieved of your ‘dischargeable’ debts. That does not mean every debt you have. There are some debts that survive bankruptcy. The most famous of these would be student loans, but there are other exceptions as well. For example, if you intend to keep a car or a home that has a loan against it, you need to keep paying that loan. You will also have to deal with budgetary items like living expenses and taxes after the case is over.
2. A Bankruptcy Case Has Many Moving Parts
You might think of a bankruptcy case like any lawsuit, but in reality, it is more like settling the affairs of one who has died. You have to collect assets, pay some bills, maybe sue someone or be sued, watch for some taxes and then deal with the remains. The same is true in a bankruptcy case. There are motions to be filed such as avoiding liens on real estate or other property. There may be requests by a creditor to foreclose or repossess because they aren’t getting paid. There may be suits by creditors claiming that their debts shouldn’t be discharged notwithstanding the bankruptcy due to claim of fraud. Or there may be some assets that you haven’t been allowed to keep that the court and the bankruptcy trustee has to sell the property and disburse the money. Each of these can keep a case open long after the discharge is issued.
3. A Bankruptcy Case Is Never Done
Even if all of the moving parts have been resolved, there may be a reason to reopen the case. Sometimes, you didn’t discover that a lien was placed on your home prior to filing your case that the bankruptcy code allows to be removed. You would have to reopen the case to file the papers to make that happen.
More frequently, you come across creditors or collection agencies that refuse to acknowledge that the debt has been discharged. We call that “zombie debt.” Some bills refuse to die. There are some debt collectors that attempt to collect discharged debt because they realize that most consumers would pay something on the bill to end harassment. Don’t pay it, don’t acknowledge it and take action to end the harassment.
The bankruptcy discharge is a continuing injunction against collection. That gives you the right to go back to court to sue a collector or creditor for attempting to collect a discharged debt. They are violating a court order and need to answer to the bankruptcy judge for their actions. Don’t let the collectors get away with it.
Failing to tie up the loose ends after a bankruptcy can do further damage to your credit. About six or so months after your bankruptcy, start checking your credit reports periodically — you get three credit reports for free every year — to make sure they accurately reflect your status. Dispute any inaccuracies as soon as you spot them. You may also want to start checking your credit scores to watch for unexpected changes that could signal a problem with your credit reports. (There are many free resources that allow you to check your credit scores, including Credit.com.)
More on Managing Debt:
- Understanding Your Debt Collection Rights
- The Best Way to Loan Money to Friends & Family
- Top 10 Debt Collection Rights