# Handling a bankruptcy notice

When a debtor files for bankruptcy, the **automatic stay** kicks in. Federal law (11 U.S.C. § 362) bars further collection activity from the moment of filing. This is not optional. Continuing to call or email a debtor in bankruptcy is a serious legal exposure for both of us.

## How we detect bankruptcy today

Today there's one production-path signal: **the debtor tells our agent on a call.** The voice agent has a `capture_bankruptcy` tool registered (see `src/services/voice/tools.py`). When the tool fires, the platform writes a `voice.capture_bankruptcy_recorded` audit event with the params the agent extracted (filing claim, chapter mentioned, attorney reference, etc.).

The other paths described in earlier drafts of this page — "you tell us via a Confirm Bankruptcy button" and "automated PACER cross-checks" — are **planned but not yet available**. There's no dashboard form for entering case info today, and no nightly PACER scraper.

## What the platform does automatically

The `capture_bankruptcy` tool today writes the audit event but does **not** automatically:

* Move the placement to a dedicated "on hold" status (there is no `on_hold` status in the `PlacementStatus` enum; the closest values are the M6 resolutions `resolved` and `withdrawn_by_creditor`, and neither is set by the tool).
* Block further outreach via the compliance engine purely on the basis of a `capture_bankruptcy` event.

The audit event is the durable record of the disclosure; the compliance halt is delivered by a follow-up step that ops takes in coordination with you.

## What you need to do

When you learn a debtor has filed (whether from our notification or directly):

1. **Email `support@moderncollections.io`** with the placement ID and what you know. We will manually halt outreach on the placement and flag it for compliance review.
2. **Confirm the filing.** Use PACER, the bankruptcy court website, or the notice you received. Get:
   * Case number.
   * Filing date.
   * Chapter (7, 11, 13, etc.).
   * Bankruptcy court.
   * Trustee or debtor's counsel contact.
3. **File a proof of claim** if your debt qualifies for distribution. There's a deadline (usually 70 days after the bankruptcy filing for general unsecured creditors). Missing the deadline forfeits your distribution — talk to your lawyer.
4. **Recall the placement** if you've decided not to pursue further — see [Pausing or recalling a placement](/for-creditor-partners/creditor-operations/pausing-or-recalling-a-placement.md). Recall sets `status = recalled`, pauses email sequences, and cancels scheduled calls.

## What we do once notified

Once a bankruptcy is confirmed:

* Ops manually halts the placement (today; self-serve halt is on the roadmap).
* We do not contact the debtor for collection purposes.
* The placement stays in your records; no contingency fee applies for post-filing collection because we're not collecting.

## Common chapters and what they mean

| Chapter | Type of filer                                   | What you can usually expect                                           |
| ------- | ----------------------------------------------- | --------------------------------------------------------------------- |
| 7       | Liquidation (corporate or sole proprietor)      | Assets liquidated; unsecured creditors usually get pennies or nothing |
| 11      | Reorganization (mostly corporate)               | Long process; you may get a settlement amount as part of the plan     |
| 13      | Wage-earner plan (individual / sole proprietor) | 3–5 year repayment plan; you may get partial payment over time        |

If the debtor is a corporation under Chapter 11, often a deal is made with creditors in a plan of reorganization. If the debtor is a sole proprietor under Chapter 7, distributions are typically very small.

## If the bankruptcy is later dismissed

If the court dismisses the bankruptcy without a discharge (debtor failed to file paperwork, abused the process, etc.), the debt becomes collectible again. Email us once you have the dismissal order and we'll lift the manual hold.

## Sole-proprietor edge cases

If the debtor is a sole proprietor, the bankruptcy applies to the individual — and FDCPA-class protections apply along with the automatic stay. Even if you think the debt is "the business's", treat it as a personal bankruptcy unless you have legal counsel saying otherwise.

## TODO

* Screenshot: `voice.capture_bankruptcy_recorded` event on the timeline.
* Build self-serve "Confirm bankruptcy" form on the placement detail page.

***

Last reviewed: 2026-05-24 by Compliance Lead. **TODO: external counsel review of automatic-stay language.**


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