When you file for bankruptcy relief, the court sends notice of your case to all creditors listed on your petition. Read on to learn more about what happens when creditors receive notice of your bankruptcy.
The moment you file your bankruptcy case, an automatic stay goes into effect. The stay prohibits almost all creditors from initiating or continuing any collection activities against you. This means that once a creditor learns of your bankruptcy filing, it cannot call you, send you collection letters, file a lawsuit, or otherwise attempt to collect its debt from you.
However, keep in mind that under certain circumstances a creditor may have grounds to ask the court to lift the automatic stay. Most motions to lift the automatic stay are filed by secured creditors (such as your mortgage or car loan company) if you fail to make your regular loan payments during bankruptcy.
When the court notifies creditors of your bankruptcy, it also informs them of the time and location of your meeting of creditors (also called the 341 hearing). Every bankruptcy debtor must attend a mandatory hearing called the meeting of creditors. The purpose of this hearing is to give the bankruptcy trustee and your creditors an opportunity to examine you under oath about your financial affairs.
In general, despite its name, creditors rarely attend the meeting of creditors. Creditors have an opportunity to review your bankruptcy petition and schedules when you file your case. Unless a creditor believes that you are hiding assets or lying on your bankruptcy papers, it does not have much to gain from attending the 341 hearing. However, even if a creditor does not attend the meeting of creditors, it can still file an objection to your discharge (discussed below).
As discussed, your creditors are invited but not required to attend the meeting of creditors. Failure to attend the 341 hearing does not eliminate a creditor’s right to object to your discharge. If certain conditions are met, a creditor may have grounds to ask the court not to discharge its debt in your bankruptcy.
Most objections to discharge involve debts that are incurred immediately prior to filing for bankruptcy or are otherwise obtained through misrepresentation, fraud, or false pretenses. To object to your discharge, creditors must file an adversary proceeding in your bankruptcy and prove why their debt should not be discharged.
The laws and procedures involving objections to discharge and adversary proceedings can be extremely complex. As a result, if you are facing an objection to discharge, consider talking to a knowledgeable bankruptcy attorney in your area to discuss your options.
To learn more, see Why a Creditor May File an Objection to Discharge in Bankruptcy.