Once someone files for bankruptcy, the bankruptcy court issues a protective order known as an “automatic stay” which requires creditors to cease collection efforts. The automatic stay prohibits creditors from filing a lawsuit to collect the money owed, making collection calls, or proceeding with foreclosure or repossession. If a creditor already has a lawsuit or foreclosure at the time the debtor files bankruptcy, the automatic stay will stop the lawsuit from moving forward.
Once bankruptcy is filed, virtually all matters in connection with the person’s financial affairs are transferred to the Bankruptcy Court. The creditor’s ability to collect money would therefore be determined by the Bankruptcy Court. Factors such as the type of bankruptcy, the type of debt, and whether the debt is secured or unsecured are factors to be considered by a creditor within the confines of the bankruptcy case.
More often than not, particularly in the context of a Chapter 7 Bankruptcy filing (the most common kind), all unsecured debts would be Discharged, permanently extinguishing the creditor’s rights to collect the debt. Continuing to attempt to collect a debt after a Bankruptcy filing is a serious violation of Federal Law and can result in sanctions brought against the offending creditor.