Anyone who’s been on the wrong side of the creditor-debtor relationship knows what it’s like to dread yet another email, phone call or letter from a well-trained, fully-prepared, and relentlessly aggressive collections professional.
And in the course of that correspondence, it’s possible — I’ll even say likely — that some collections professionals bend the truth; or in some cases, outright break it. Is this legal? Of course not. But does it happen? Unfortunately yes, it occurs every day.
To that end, if collections professionals are on your trail — or it’s just a matter of time before your file crosses their desk — then here are four critical facts that you need and deserve to know:
#1 The moment you file for bankruptcy (any chapter), creditors must cease and desist contacting you directly
In real life, because we’re talking about slow-moving courts here, it usually takes anywhere from a week to a month for all creditors listed in a bankruptcy filing to be officially notified (typically by letter).
However, it’s also true that the instant your filing is approved, you’ll receive a file number from the court that you can (and frankly, should) provide to any creditor who contacts you from that moment on.
After that point, the creditor(s) must communicate only with the court-appointed bankruptcy trustee, or if they have issues with the process itself, they can communicate directly with the court.
They cannot communicate with you. Period. End of story.
#2 A chapter 7 bankruptcy filing will wipe away the medical debt
Medical debt has emerged as the number one cause of consumer bankruptcy — which means that if you’re facing a mountain of bills from doctors, clinics, hospitals, health networks and so on, then you’re certainly not alone.
What’s more, as noted by Charles Huber, an attorney who has been filing consumer bankruptcy cases for more than 30 years (learn more at charleshuberlaw.com), any collections professional that tells you that medical debt won’t be wiped away per a chapter 7 bankruptcy filing is lying.
Yes, it’s true that some types of debt — such as alimony, child support, court-ordered restitution from a prior criminal matter and student loans — won’t get cleared. But as you can see, medical debt isn’t on the list.
#3 Filing for bankruptcy will “ruin your financial life.”
I’ve saved the most egregious falsehood for last. Some creditors meticulously paint a horrifying picture of life-after-bankruptcy — one where you can’t get a job, rent an apartment, obtain a mortgage, or even get approved for a department store credit card. Heck, even your dog won’t want to go for a walk with you anymore.
Here’s the real story: yes, your credit score will take a hit (the actual amount is based on where it stands now — the higher your credit, the larger it will fall).
And yes, for the first few months, you can pretty much forget about getting a mortgage, conventional car, credit card or bank loan, or getting a job where a high credit score is mandatory (such as is the case with some positions in the financial field).
However, with some prudent financial planning and discipline (no more or less than anyone else should, regardless of whether they’ve filed for bankruptcy), you’ll be on-track towards rehabilitating your credit score.
Does this mean that filing for bankruptcy is a walk in the park? Of course not. But it’s not Dante’s Inferno, either. And the reason that some creditors want you to think it is, is simply — and surprisingly — because they actually don’t want you to file for bankruptcy!
If you do, then they aren’t going to get full payment, and as noted above, they can’t keep chasing you down.
The Bottom Line
The purpose of this article isn’t to sully the reputation of collections professionals (and the agencies that hire them) who are simply doing their job; which, after all, is to legally convince debtors that to pay at least some of what they owe.
Rather, it ensures that you get the facts to safely steer your financial ship through choppy waters today, and set a course for smooth sailing in the near future.