Collections, Charged Off Debt, and Bankruptcy

One bankruptcy filer recently wrote to a bankruptcy forum website and wanted to know if a secured debt, like a piece of furniture, could be kept after the debt had been charged off by the creditor and discharged in bankruptcy.

Any secured debt is bound by a lien on the property secured. Bankruptcy does not discharge liens, just the debt owed on the secured property. If the creditor who sold the furniture wanted to come and repossess the property, the bankruptcy filer would be legally obliged to turnover the property.

In unsecured debt, the debt can equally be charged off by the creditor who made the loan. A charged off debt is made by a creditor for tax purposes. Once a debt has gone into default, most creditors will charge off the debt for tax purposes after a given amount of time.

Charging off a debt normally occurs after a creditor has sent the debt for collections. A creditor will either send the debt to their collection department for collections, or they will send the debt to a collection agency for collections. In either case, when they give up on trying to collect the debt, they will write the debt off their books by charging off the debt.

For those of you who are facing bankruptcy, an uncomfortable problem can occur if one of your creditors decides to charge off your debt. A creditor, like a credit card company, will often sell the charged off debt to junk debt buyers, collection agencies which buy debt at pennies on the dollar. The creditor will get to charge off the difference in what they received for the debt and what was owed.

The new owners of the debt can often confound the bankruptcy process. Usually they will tack penalties, various fees, and interest on what you owe on the debt and begin their collections activities to collect. Since they are new, you may not have included the collection agency as a creditor on your bankruptcy schedules, commonly happening nowadays.

As a result, the collection agency will often contact you after the automatic stay of the bankruptcy court has been activated and even after the the debt has be discharged by a Chapter 7 bankruptcy. Although the new owners of the debt are bound by the automatic stay and discharge of bankruptcy, they still will often take liberties with the fact they have not been notified of the bankruptcy.

Fair debt collection and bankruptcy laws both prevent these collection agencies from illegally using these type of tactics in their collections, but unfortunately, it is up to you to provide your own consumer protection. That means you may have to consult with your bankruptcy lawyer who can help stop the collection harassment by the collection agency illegally contacting you.

If you have a creditor who has already charged off your debt, sent the debt to collections, and you are feeling the stress of their harassment, contact us, and we will help you find a bankruptcy attorney in your area who will help you understand how bankruptcy laws might alleviate the situation.

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