Your Debtor Filed for Bankruptcy — Now What?

The Automatic Stay: What It Means for You Right Now

The moment a debtor files for bankruptcy — the exact moment the petition is filed — an automatic stay takes effect. The automatic stay is a federal injunction that immediately halts virtually all collection activity against the debtor. This includes:

• Phone calls, letters, or any contact intended to collect a debt
• Wage garnishments — the employer must stop withholding immediately
• Bank levies — funds frozen under a levy must typically be returned
• Foreclosure and repossession actions
• Continuing lawsuits against the debtor (they are stayed, not dismissed)
• Any attempt to enforce a judgment lien

Violating the automatic stay — even unknowingly — can expose you to sanctions. The moment you receive a bankruptcy alert, stop all collection activity and contact your attorney.

Which Chapter Did They File?

The bankruptcy chapter determines how the case proceeds and what your options are.

Is Your Judgment Dischargeable?

Discharge in bankruptcy wipes out a debtor's personal obligation to pay a debt. But not all debts are dischargeable. If your judgment falls into a non-dischargeable category, the debtor will still owe you even after the bankruptcy closes.

Debts that are generally not dischargeable in bankruptcy include:

• Debts obtained through fraud — if the debtor obtained money, property, or services from you through fraud, misrepresentation, or false pretenses, the resulting judgment may be non-dischargeable
• Willful and malicious injury — if your judgment arose from an intentional tort (the debtor deliberately harmed you), that debt survives discharge
• Embezzlement, larceny, or fiduciary fraud — debts arising from theft or breach of fiduciary duty
• Domestic support obligations — alimony, child support
• Recent tax debts — federal and most state income taxes within the past 3 years
• Student loans — generally not dischargeable absent undue hardship

A simple contract breach or unpaid business debt typically is dischargeable. A judgment arising from fraud, conversion, or intentional harm may not be. To contest dischargeability, your attorney must file an adversary proceeding in the bankruptcy court within the specific deadline — usually 60 days after the first date set for the meeting of creditors.

What to Do Immediately

Time is critical in bankruptcy. Here is what needs to happen quickly after you receive a bankruptcy alert:

1. Stop all collection activity. Halt any garnishments, levies, or contact efforts immediately. Notify anyone acting on your behalf.
2. Contact your collection attorney. They need to identify the bankruptcy case number, the filing court, and the claims deadline.
3. Obtain the Notice of Bankruptcy. The bankruptcy court mails official notices to known creditors. If you were listed in the debtor's schedules, you should receive one. If not — which happens when debtors omit creditors — your attorney can pull the case from PACER (the federal court records system).
4. File a Proof of Claim before the bar date. In Chapter 7 and Chapter 13 cases, there is a deadline (the "bar date") by which creditors must file a Proof of Claim to be eligible for any distribution. Missing this date typically means receiving nothing from the estate regardless of how much you're owed. The bar date is set by the court — your attorney can find it in the case docket.
5. Evaluate whether to object to discharge or dischargeability. If there are grounds (fraud, willful injury, etc.), your attorney must file the appropriate adversary proceeding within the court's deadline.
6. Monitor the case. Bankruptcy cases can take months or years. Stay in the loop through your attorney or by checking PACER for case updates.

After Discharge or Dismissal: What Comes Next

There are two ways a bankruptcy case can end for a creditor like you: discharge (the debts are wiped out) or dismissal (the case is thrown out, usually for procedural failures by the debtor).

If the case is dismissed without a discharge, the automatic stay lifts and your collection rights are fully restored. You can resume all enforcement actions — garnishments, levies, and lien enforcement — as if the bankruptcy never happened. This is the best outcome for a creditor.

If the debts are discharged, the debtor's personal obligation to pay is eliminated. You can no longer pursue the debtor personally. However, your judgment lien on real property may survive the discharge in some circumstances — liens generally are not automatically voided by discharge unless the debtor takes steps to avoid them in the bankruptcy. Your attorney can advise on whether your lien remains enforceable against the specific property.

After a bankruptcy closes, resume monitoring. A debtor who has gone through bankruptcy often rebounds financially faster than expected — and the same monitoring setup that caught the bankruptcy filing will catch any future asset acquisition.