When a debtor files for bankruptcy in the Texas, creditors often feel blindsided—especially if a lawsuit, judgment, or collection efforts were already in progress. Understanding what happens next is critical. The Bankruptcy Code imposes strict rules, and missteps can expose creditors to sanctions or missed recovery opportunities.
1. Stop All Collection Activity Immediately
As soon as a bankruptcy petition is filed, the automatic stay goes into effect under 11 U.S.C. § 362. This stay prohibits almost all collection activities, including:
- Phone calls, emails, or letters demanding payment.
- Filing or continuing lawsuits.
- Enforcing judgments.
- Bank levies.
Violating the automatic stay can result in penalties, attorneys’ fees, and even punitive damages. Even unintentional violations can lead to sanctions, so cease collection efforts instantly.
2. Verify the Bankruptcy Filing
- The case number.
- The chapter filed.
- The jurisdiction.
Use court notice to confirm details.
3. Identify the Bankruptcy Chapter
- Assets (if any) are liquidated by the trustee.
- Secured creditors may fare better.
- Debtor proposes a plan of reorganization.
Use court notice to confirm details.
4. File a Proof of Claim
Most creditors must file a Proof of Claim to be eligible for payment from the bankruptcy estate. This is typically filed through the court’s electronic system.
If you need assistance navigating creditor rights in bankruptcy, our law firm can provide guidance on proofs of claim, nondischargeability actions, stay-relief motions, and strategic recovery options.