Old Debt, Bad Debt

Not all debts are made equal.  For many people, they continue to have old, no longer collectable debts harrass them and report on the credit, dragging them down.  This is despite the fact there is no longer an enforceable obligation - in other words, any money collected is basically a gift to a debt collector.

The most common situation is debt where the statute of limitations has expired (generally 4 years).  Once the creditor has lost its right to sue you, it has no mechanism for collection beyond harrassment.  Even a judgment, if the creditor fails to renew it in a timely manner, can lapse into nothingness.

So, how does this matter in bankrutpcy?  For most people, it is simple - their discharge will steamroll all their debt, old and new, into non-existance, and make any future attempt to collect illegal.  Phone calls, letters, candygrams... whatever.  It all has to end.  the most important thing is making sure we notify everyone who has a claim, or believes they have a claim, that they are owed money.  The Judge doesn't pronounce "speak now or forever hold your peace," but that is essentially what happens.

For other folk, they can use bankruptcy to force their creditors to come forward with proof they are entitled to payment, and eliminate anyone who can't.  It's incumbent upon the creditor to file a Proof of Claim demonstrating why they are owed money.  

John Oliver did a great segment on this not to long ago, linked to below (warning: its from HBO, so foul language can be used).