What to do When You’ve Forgotten a Creditor

FORGOTTEN CREDITORS

Chapter 7

If you forgot a creditor, do you still owe it when your case is over?  In most Chapter 7 cases, no you don’t.

Of course the analysis is different for the different chapters of bankruptcy.  In Chapter 7 bankruptcy if you inadvertently leave a creditor off your petition, whether you have to pay them back or not depends on two things:  1. Did you rip this creditor off or cheat them out of their money or intentionally injure their person or property? OR 2. Did the Trustee assigned to your case set a deadline for creditors to submit claims for money.

Pretty much, if a creditor is left off your chapter 7 bankruptcy and if you didn’t cheat them out of their money in some way or intentionally harm them, then in most cases your debt will be discharged even though it was left out of the petition.

This is true only when your bankruptcy trustee did NOT set a deadline for creditors to make claims for money. The debt is automatically discharged. You don’t even have to reopen your case and add them to it, you just send them a copy of your discharge and remind them that you owed them before you filed your bankruptcy.  See Beezley v. California Land Title Co, (In re Beezley), 994 F.2d 1433, 1434 (9th Cir. 1993) (per curiam).

A bankruptcy trustee will only set that deadline if you have money or property that he can take away from you, sell, and pay the proceeds to your creditors.  For the vast majority of you, this will never happen.

To make the issue just a little clearer than mud, here’s a copy of the statute, 11 USC Section 523(a)(3):

[A debt is not discharged in bankruptcy if it is]

(3) neither listed nor scheduled . . .  with the name . . . of the creditor to whom such debt is owed, in time to permit—
(A) . . . timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; OR
(B) [if you did commit fraud, embezzlement or intentional injuries or damage] . . . . , timely filing of a proof of claim AND timely request for a determination of dischargeability of such debt . . . unless such creditor had notice or actual knowledge of the case in time for such timely filing and request; 

11 USC Section 523(a)(3)(A)

ON THE LIGHTER SIDE: A bankruptcy trustee only sets a deadline for creditors to submit proofs of claim when he finds that you property that he can take away from you, sell, and pay your creditors.  This deadline is called a claims bar date.  So, for instance, you have a house with $50,000 in equity and you also have a cabin in the woods worth $10,000.  More typical is your home has $50,000 in equity and when that happens you can only protect about $3000 in cars.  If your car is worth $10,000 then your trustee is going to sell it and pay you a $3000 check.  You won’t be able to keep both the house and the car.

Your bankruptcy trustee will sell your car or cabin and split the proceeds among your creditors and that is true even if it would only pay your creditors 1% of what you owe them. Of course, if your cabin really is only worth $10,000 then he might not find a buyer.  What if he doesn’t?  Your trustee will still have already set the claims bar date anyway because he sets that long before he finds out that no one wants to buy your cabin afterall.

Your bankruptcy trustee might not set the claims bar date until months after your case has already discharged.  Once the trustee notifies the court that there may be assets, a claims bar date is set.  That date is usually 90 days after the bankruptcy trustee notifies the court.  At that point, you should definitely make sure that every creditor listed in your case is listed with the correct address.  Double check all of your records to make sure none were left out.  If you listed a creditor at the wrong address, then they won’t know about the bankruptcy and won’t get a share. So, Google all their corporate addresses.  Go to AnnualCreditReport.com or FreeCreditReport.com and to help make sure no one is missing.

If your creditor was not notified or if you used the wrong address, or if you found the right address but notified them too late to submit a proof of claim, then that creditor will not be discharged and you will owe them in full.  That is the start of a bad day.

Unless you can prove that the creditor had notice or actual knowledge.  So, for example, you had a business partnership and you listed both of your partners as creditors.  If however one of them moved but then he finds out that you filed from the other partner who didn’t move . . . then you just have to be able to prove that he knew in spite of the move.

It could be as simple as getting the one to testify and say that he told the other. Good luck with that one, they’ll probably collude to testify that he didn’t and then split what you owe the guy who moved.  Or if the move-away partner telephoned and left a snarky or nasty message about it.  You’ve got him.  If you scanned the notice of commencement of case and emailed it to him, then you’d be able to prove that you’d done that.

Best of course, if you realize that a creditor has been left out, and if you know that the bankruptcy trustee is setting the claims bar date, double check everything and amend your bankruptcy as necessary.  That’s going to cost some money, but it’s better than paying them back.

11 USC Section 523(a)(3)(B)

THE DARK SIDE: Basically the gist of this is: If you cheated a creditor either by fraud, theft, embezzlement, or intentional injury to person or property, then leaving them off your bankruptcy is not going to protect you from them.  You cannot beat these kinds of creditors by adding them late by amendment with only a week or two to go to the end of your case.  If a creditor would have a claim for this kind of debt, they must ask a judge to exclude them from your discharge.  But they must make that request in writing and file it with the court during the 60 days after your first hearing date.

Your first hearing date is called your first meeting of creditors.  The request that a creditor must file against you is a special type of lawsuit called an Adversary Proceeding.  If they were notified properly AND don’t file this lawsuit, then they have already lost.  It’s like a mini-Statute of Limitations, but it only works if they in fact knew about it.  If the creditor knew that you filed, and does not sue, then they lose by Default.

But subsection (B) of the statute has that little word, “and” in the text, what does that do?  “filing of a proof of claim and timely request for a determination of dischargeability”.  Does that mean that if you cheated a creditor out of money that the bankruptcy trustee must still file a notice to set a deadline to file proofs of claim in order for their claim to survive the bankruptcy discharge order?

Basically it works this way: Above on the lighter side, where there was NO fraud, NO embezzlement,  and NO intentional harm, the debt was discharged with nothing more happening.  In the dark side, where you DID cheat the creditor or you DID intentionally harm the creditor, the debt is NOT discharged.  However, the creditor has the same requirement to file an adversary proceeding to prove it.

When do they have to file that lawsuit though?  Since they didn’t get notice, then whenever they file it, it will be timely.  So, my recommendation is to reopen the case, add the creditor, and ask the court to determine a last date for that creditor to file their lawsuit against you.

Most creditors even when they have pretty good cases will still never bother to sue you in the bankruptcy court.  Especially when we’re talking about institutional creditors like the big banks.  A small creditor like The Piano Credit Company will sue you for fraud even when anyone can see that you never did it.  Your best friend who lent you some money or your former business partner, those are the ones that sue you.

Chapter 13

In chapter 13 bankruptcy, every case is an asset case and every case has a deadline set automatically for creditors to submit proofs of claim.

So, it is very important to make sure that your addresses are all correct, and that you have listed every one you might owe money or property.  You can download each of your three credit reports for free at AnnualCreditReport.com, and for a small fee you can download them at FreeCreditReport.com.  Keep in mind however that not all of your creditors will have reported to the credit reporting agencies and sometimes they are temporarily off of the reports.

If you are in bad financial circumstances, do not throw anything away.  Keep every invoice or billing statement that you ever get.  Keep every collection letter and every letter from an attorney.  If ever have to come and see me, you may wish you still had them someday.  Do not throw them away.

$100 Starts

Bankruptcy $100 Starts

You may have read this before. But what does it really start? You think you’re getting a cheap bankruptcy or an affordable bankruptcy, but what are you getting really?

Your chapter 7 case will not be filed until you have paid the attorney’s fees, plus the filing fee, plus the credit counseling in full and completed the credit counseling. Period. This is true whether you come to me or anyone else.

Some of the $100 Starts guys (definitely not all) might file your case for you for $100 but only if you pay the $281 filing fee for a chapter 13 bankruptcy which is a bankruptcy with a payment plan for 3 to 5 years. Do you want a bankruptcy with a payment plan for 3 to 5 years just so you can afford to pay your attorney to file the case?

$50 Starts

$100 or $50 starts you making your payment plan against your attorney’s fees to your attorney, and that’s all. In my case it starts me taking your creditor phone calls when they start coming in which is usually the following day. Many attorneys won’t even do that. They say they’ll take the calls but then don’t do it until you’ve paid in at least half of your attorney’s fees. Or they’ll straight up tell you that they won’t take any calls until you’ve paid in half of the attorney’s fees.

For $100 will they send letters or make phone calls to your creditors for you? Of course not, neither will I . . . well, maybe one if it’s urgent. But it sounds like that’s what you’re getting doesn’t it? Immediately a bunch of phone calls and letters going out from the attorney’s office to beat down the bad guys. But all you get for it is a payment plan.

What I will do is this; once you have made the down payment to me, I’ll take your creditor phone calls for you. You must start taking your own calls again and when the collection agents call, tell them that you’re going to file for bankruptcy and that your attorney’s name is David Nelson and ask them to call me and verify it at 951 200 3613. Of course, don’t do this until we have met, signed retainers and you have paid me at least a down payment. 98% of your creditors will never call you back directly once you do that. They call me and verify it then leave you alone. Every now and again, one of them gets overzealous and then I write that one a letter. Once they receive the letter they leave you alone.

Affordable Bankruptcy

But even if all you did was start your payment plan, how much of a dent have you made if the attorney charges you $2000 for your affordable bankruptcy? Nada mucho. My prices generally start from $700 for widows, orphans and cancer patients or disabled folks plus the filing fee, up to My usual range which is $1000 to $1500 in attorney’s fees plus the filing fee for most cases and of course if you have several houses or a ton of cars or a lot of income, it can go up steeply from there.

But even so, I’ve had clients with a half a dozen houses and even those cases were only $2100 in attorney’s fees. So, still a strong affordable price compared to most. Normally, I don’t charge for extra creditors or extra collection agencies. Most people don’t have more than about 50 anyway. So, it’s not that much extra work from 20 or 25 to get to 50 data entries in a keyboard.

Of course, If you have a garbage bag full of unsorted collection agents, it’s going to cost you a bit more if you want me to pick through it, sort the duplicates and type up more than that range. Just bring me one statement from each account. IF you bring me your credit report make sure it has the addresses of the creditors on it so that I don’t have to search the web for them. IF it doesn’t, make sure you seach the web for those addresses and put them on the credit report or make sure you bring extra money to pay me to do it.

A great way to know how many creditors you have is to go to AnnualCreditReport.com to get your free annual credit reports. Make sure that you check mark all three credit reports on the page that asks which ones you want. Last I saw if you tried to check one at a time, it wouldn’t let you go back again. Also FreeCreditReport.com is a good place to go. They charge for a credit rating monitoring service but then allow you to get a free credit report with all three merged reports, once you have that, go back immediately and cancel the service before they charge you.

So what makes more sense to you? $100 starts you on a payment plan to pay off $1500 or $2000 in attorney’s fees or $100 starts you on a payment plan to pay off $700 (if you’re disabled or a widow or sick) to $1200 .

Bankruptcy Attorney David Nelson on Google+

Which Chapter in Bankruptcy is Right For Me?

Chapter 7 vs Chapter 13

Automatic Stay

The moment that you file your case, whether in chapter 7 or chapter 13, a temporary restraining order is issued by the bankruptcy court prohibiting collections of any type with a few exceptions. Exceptions include things like child and spousal support and certain types of government debts.

Chapter 7

A chapter 7 bankruptcy, also called a straight bankruptcy, and also called a liquidation bankruptcy is the one that most people are thinking of and talking about when they discuss bankruptcy. Over in about 4 months, this is it’s primary advantage, you’re in and you’re out again.

In a chapter 7, you’re allowed to keep only so much property. Whatever you own over and above what you get to keep, the bankruptcy trustee takes away from you, liquidates or sells it, and uses the proceeds to pay your creditors a pro rata or proportional share of the funds based on the percentages of the total debt that’s owing from you to your creditors. Suffice it so say that if you owe $100,000 and the Trustee is able to collect $25,000 from your property, then your creditors will get about 25% of the debts that you owe them.

Most of you will keep everything you own and your creditors will get nothing.

Any portion of the debt left over after the trustee administers your case, whether it’s 95% of the balance or 100% of the balance that’s unpaid, that portion is discharged by the bankruptcy.

So in a small nutshell a Chapter 7 is a bankruptcy where the bankruptcy trustee may take property away from you (if there’s any to take) and when it’s over, your consumer debts are discharged or in other words, you receive a court order which is a permanent injunction prohibiting collections.

Remember that there are exceptions to the discharge. Certain kinds of debts are exempt from the discharge and will remain a personal obligation for you to have to pay once your case is over. Child Support, Spousal Support, Student Loans, Recent Income Taxes, and a number of things which are similar in nature are not discharged. You will still have to pay your mortgage if you want to keep your house, you will have to pay for your car if you want to keep your car as well. For more details (but only if you’re in California) and to discuss specific debts, call me 858 452 4500.

You must qualify for a chapter 7 by showing that your income is sufficiently low or that certain expenses are sufficiently high or both. This test is called the Means Test.

Chapter 13

With Chapter 13 you get to keep everything. If you would have lost it in the chapter 7, you can still keep it in the chapter 13 as long as you pay the bankruptcy trustee for it instead of giving it to him and letting him sell it. A chapter 13 case is a bankruptcy with a payment plan. Payment plans last from 3 to 5 years.

If you file in Riverside, the Trustee is Riverside has produced a Chapter 13 Handbook to help guide you through your case. Read it. It is specifically for the Riverside cases, and much of the information is tailored specifically and applies only to Riverside. If you file in Santa Ana, LA, San Diego or San Francisco, ask if there is a different handbook. There may be by then.

The payment is determined by your income and expenses. If you don’t qualify for a chapter 7, then your payment is determined by what the means test states you have to pay.

There are other reasons you might file a chapter 13 instead of a chapter 7, in a chapter 13, you are able to propose a payment plan that allows you to catch up unpaid payments on your home and thus at the end of the payment plan, you are current on your first mortgage again. If you have a 2nd mortgage and your home’s value is lower than the balance on the first mortgage, then you may qualify to have the 2nd mortgage removed from your home.