Bankruptcy filings create immediate changes in the legal landscape for creditors. Knowing whether a debtor has filed for bankruptcy—or has filed in the past—is essential for any collection effort.
The Automatic Stay
When a debtor files for bankruptcy, an automatic stay immediately stops all collection activity. Continuing collection efforts after a bankruptcy filing can result in sanctions against the creditor.
Types of Bankruptcy
Chapter 7
Liquidation bankruptcy that discharges most unsecured debts. Typically completed in 3-6 months.
Chapter 13
Reorganization bankruptcy with a 3-5 year repayment plan. Debtor keeps assets but makes payments to creditors.
Chapter 11
Business reorganization that allows companies to continue operating while restructuring debts.
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Strategic Implications
Bankruptcy information helps creditors:
