Bankruptcy Basics: After Your Case Is Over–Who Will Buy Your Discharged Debt And Why?

12 Aug Bankruptcy Basics: After Your Case Is Over–Who Will Buy Your Discharged Debt And Why?

When your bankruptcy case is over, the Bankruptcy Court issues a Discharge Order. That Order provides that all dischargeable debt is now discharged. That means, that the creditor that you owed the debt to, can no longer try to collect the debt. Period. Section 524 of the U.S. Bankruptcy Code provides a permanent injunction (like a restraining order) against the collection of discharged debt.

So, six months later, a year later, maybe even four years later, an envelope arrives at your house with a notice that XYZ Debt Collection is now the owner of this debt and demands payment. What?? The first phone call is usually an angry one to the attorney who represented you (if you had one). Most attorneys would just tell you to write a letter and show the XYZ Debt Collection that this debt was included in bankruptcy. And most of the time, XYZ will just go away.  However, there is a small, but growing number of attorneys who are fighting back on behalf of consumers.

XYZ should NEVER have sent you a bill. The original creditor should NEVER have sold or transferred your discharged debt for collection by that company. Why would XYZ agree to try to collect debt that has definitely been discharged in bankruptcy? Money. It is always about the money. Discharge Debt Buyers/Debt Collectors have paid pennies on the dollar. Any money they collect is pure profit. And, sometimes, XYZ gets folks to pay. These debt collectors/buyers are among the worst to deal with–they threaten garnishment, arrest, to take bank accounts, to call your parents—anything that will get folks to pay. And a few folks will pay. Folks who haven’t been given good advice. Folks who are scared of another debt collection company showing up on their credit report. For more information on this issue, see Jay Fleischman’s report on credit reports after bankruptcy.

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I'm a consumer protection lawyer in Oregon, working with people in Klamath; Lake; Jackson; Josephine; Curry; and Deschutes County. I speak regularly on bankruptcy and consumer protection issues nationwide.
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