When you make the decision to file for Chapter 7 bankruptcy, it is typically because your debt is so out of control it is the only way to get back on your feet financially. Frequently people file
Chapter 7 after an illness, a work layoff and even after divorce. One of the most significant benefits of Chapter 7 bankruptcy is the ability to get a fresh financial start. While
bankruptcy will not discharge tax debts, child support payments or payments for personal injury cases, you can wipe out your revolving credit and other credit accounts by filing Chapter 7.
Beware of collection agencies
What most people are unaware of is that there is a statute of limitations that applies to when creditors may sue you to collect a debt. It is important to know that while the creditor may still pursue collections, they cannot obtain a court order to force you to pay. In California, this time limit is six years on credit card debt. However, any payment you make, regardless of how small it is could result in that time being "restarted". When you file bankruptcy, these credit balances are wiped out once your bankruptcy has been discharged. Unfortunately, sometimes they come back.
Returning debt: Zombie collections
Most people who file Chapter 7 are anticipating a fresh financial start. Unfortunately, there are credit collection agencies who tend to ignore the law and even after you have received a discharge, they are going to do everything in their power to collect monies from you for debt that you no longer owe.
In order to understand how these collectors work, you must first understand that most creditors will "sell" your debt to an agency after they deem your account noncollectable. This is typically prior to a bankruptcy filing (though not always). Credit collectors are only paid for the amount of money they actually recover on past-due debt. Therefore most will continue to report the funds you owe to credit agencies, even if those debts are eliminated through bankruptcy. These are commonly known as "zombie debts" and they cannot be collected.
It is important to understand that bankruptcy filings are meant to protect you from creditors. If a creditor is attempting to collect on a debt that was discharged in bankruptcy, they are using illegal methods. You must notify them in writing immediately that these debts were discharged in bankruptcy and that you are not legally responsible for them. If they do not immediately remove this information from your credit report, if they threaten you with court action or if their collection efforts continue you should immediately contact the Law Offices of James C. Shield. Do not allow creditors to threaten you with zombie debt collection activities.