How to Collect from a Debtor Who Just Declared Bankruptcy

Few things frustrate creditors more than learning that a debtor has filed for bankruptcy just as collection efforts were beginning to gain traction. Suddenly, lawsuits are halted, garnishments freeze, and recovery seems out of reach. But a bankruptcy filing doesn’t necessarily mean your claim is lost. With the right legal strategy, there may still be ways to recover all or part of the debt owed to you.

At the Law Office of Douglas D. Koktavy, we represent creditors across Colorado and the U.S. in complex collection matters, including cases where debtors attempt to use bankruptcy to avoid paying what they owe. While bankruptcy changes the playing field, it doesn’t always end the game. Here’s what every creditor should understand when a debtor files.

The Automatic Stay: What It Means for Creditors

As soon as a debtor files for bankruptcy, whether under Chapter 7, Chapter 11, or Chapter 13,  an automatic stay goes into effect. This stay is a legal injunction that immediately stops all collection activity, including:

• Pending lawsuits
• Wage garnishments
• Bank levies
• Foreclosures
• Phone calls or demand letters

Violating the automatic stay can expose you to court sanctions or even damages. That’s why it’s critical to pause all action as soon as you receive notice of a bankruptcy filing. However, the stay is not the end of the road; it’s a temporary barrier that can sometimes be lifted or worked around.

Steps Creditors Should Take Immediately After a Bankruptcy Filing

If you receive notice that a debtor has filed for bankruptcy, take the following steps:

1. Verify the filing: Check the PACER system or the bankruptcy court's docket to confirm the case has been filed and determine which chapter was chosen.
2. Determine the type of debt: Identify whether your claim is secured, unsecured, or priority. This classification affects how (and if) you’ll be paid.
3. File a proof of claim: In most cases, you’ll need to file a formal proof of claim with the bankruptcy court to preserve your right to payment.
4. Consult a creditor’s rights attorney: Every bankruptcy case is different. You may have more leverage than you think, especially if you act quickly and understand your rights under the Bankruptcy Code.

Can You Lift the Automatic Stay?

In certain cases, you can file a motion with the bankruptcy court asking the judge to lift the automatic stay and allow your collection efforts to continue. These motions are commonly granted when:

• The debtor has no equity in the collateral securing your debt
• You’re a secured creditor and your interest isn’t adequately protected
• The bankruptcy was filed in bad faith, solely to delay creditors

Lifting the stay is a strategic move, particularly in Chapter 13 cases where repayment plans can drag on for years. Even in Chapter 7 liquidations, secured creditors may have the opportunity to reclaim or repossess collateral if the stay is lifted.

Is the Debt Dischargeable?

Not all debts are wiped out in bankruptcy. Some debts are non-dischargeable under the law, meaning the debtor will remain legally obligated to pay them after the bankruptcy is over. Common examples include:

• Debts incurred through fraud or misrepresentation
• Willful and malicious injury to person or property
• Embezzlement or breach of fiduciary duty
• Certain tax debts

To keep your claim from being discharged, you typically must file an adversary proceeding, essentially a lawsuit within the bankruptcy, arguing that the debt meets one of the exceptions. These proceedings require precise legal arguments and timely filing, but they can preserve your claim even when other creditors walk away with nothing.

What About Secured Creditors?

If you hold a secured claim, such as a loan backed by real estate, vehicles, or equipment, you may have more options. Secured creditors are entitled to receive the value of their collateral, and in many cases, they can recover that property even during bankruptcy proceedings.

We help secured creditors:

• Enforce their rights under security agreements
• File motions for relief from stay
• Negotiate reaffirmation agreements
• Object to undervaluation of collateral in Chapter 13 plans

Timing matters. Waiting too long can limit your rights, particularly if the debtor’s bankruptcy plan is confirmed by the court before you assert your position.

How Much Will You Recover?

Bankruptcy rarely results in full recovery for unsecured creditors. However, the amount you receive depends on several factors:

• The total assets available in the estate
• Whether the debtor is proposing a payment plan (Chapter 13 or Chapter 11)
• How your claim is classified (secured, priority, or general unsecured)
• Whether you file objections or adversary proceedings

Even when full payment isn’t possible, asserting your rights early increases your chances of recovery. In some cases, filing a lien or collecting on a guarantee can result in payment outside the bankruptcy estate altogether.

Don't Wait to Act and Protect Your Rights Now With Douglas D. Koktavy

When a debtor files for bankruptcy, many creditors assume they’ve lost the battle. But that’s not always true. With the right legal strategy, it’s possible to recover secured property, challenge the discharge of certain debts, or participate meaningfully in the bankruptcy process.

Contact Douglas D. Koktavy today to discuss your case. We help creditors protect their rights and maximize their recovery, even when bankruptcy gets in the way. Whether you’re dealing with a fresh filing or a complex dispute, our team is ready to help you pursue what’s legally yours.