Tag Archives: creditors

Bankruptcy Alphabet - N is for Notice

It is common to refer to the most important feature in buying real estate as, “location, location, location.” Bankruptcy has a similar expression about two different points: Disclosure, disclosure, disclosure and notice, notice, notice. Since we’re on the letter N, and you read the title, I trust that you can figure out which one we’re discussing here.

Bankruptcy is sometimes described as an extraordinary remedy by the courts. What they mean is that bankruptcy is a privilege and you are getting a heck of deal. The trade off is that you must disclose everything in financial terms required by the court, and notify everyone relevant.

Who gets notice?

When you file bankruptcy, anyone you owe money to must be disclosed. That’s the disclosure part. But you also have to list their address among other information. This is because the court takes these names and addresses of your creditors and creates something called a creditor matrix. That’s a fancy way of saying it created a list of people you money to. The court mails each person on this list a notice of your bankruptcy filing so that the creditor is aware you filed. This provides each creditor notice of the hearing date of your 341 meeting of creditors and deadlines for them to act.

Why is notice so important?

First, you want everyone you owe to know that filed because they will stop contacting you. No more calls and threatening letters. And if they do contact you after you file, you may be able to bring a claim against your creditors in bankruptcy court. Kind of nice when a misbehaving creditor is forced to pay for your bankruptcy.

Second, failure to list a creditor may mean that you still owe them. For example, in Chapter 13 your creditors receive notice of your filing. The creditor then files a proof of claim describing what you owe them. Let’s say you have a credit card with Chase, and you owe them $20,000. Assume your Chapter 13 is a 10% plan, meaning unsecured creditors get 10% over the life of your Chapter 13, and the remaining 90% is discharged when you complete your Chapter 13. So Chase would be paid $2,000 (10%), and you get rid of $18,000. Good deal. But it only works if Chase was notified. If not, you will still owe Chase $20,000.

Third, intentional failure to list or notify anyone is the worst idea ever. I sometimes see this when clients owe family or friends. Whether it’s embarrassment or not wanting to “involve” this other person in the bankruptcy process, it will backfire. It’s fraudulent to intentionally fail to disclose and notice all creditors. If you’re playing these kind of games, you can lose your discharge in its entirety, meaning you will still owe all creditors. If you’re really playing games, you can go to prison.

Take advantage of this extraordinary remedy called bankruptcy, but just follow the rules. And the rule for today is notice, notice, notice.

Bankruptcy Alphabet: F is for Fraudulent Transfer

Today, we move down our alphabet list to F for Fraudulent Transfers.

Do you cut your own hair? Or fix your own brakes? How about self-diagnose and treat an illness? I only tried cutting my own hair once when I was 13. As you might imagine, it was a complete disaster. I cut my bangs to about 1 inch, and let’s face it - no amount of professional intervention can cure that. Now, I know. When it’s important, get professional help before endeavoring in self-help.

One of the biggest mistakes a person makes when s/he starts going into deep debt is attempting to hide assets by transferring or selling it for less than fair market value to friends or family. Transfer of assets with the intent to hinder, delay, or defraud is known as a “fraudulent transfer.” An example might be selling your car for $1 to your mom so that the creditors can’t take it or quitclaiming title to your home to someone you trust. Oftentimes, such a strategy is misguided, unnecessary and causes more problems than solving it. Remember, filing for bankruptcy does not mean you’ll lose all of your assets!

In bankruptcy, we are required to disclose transfers made within certain “look back” periods. So, in our example above, the sale for $1 will have to be disclosed. The trustee in the bankruptcy case can unwind or “undo” the transfer and get the car back then sell it for the benefit of repaying the creditors. Worse yet, fraudulent transfers can be the basis of denying discharge. What this means is that not only will you lose the car, but you can be still stuck with all of your debts!

I see clients making serious mistakes by exercising “self-help” which can be very costly to fix and like a bad haircut, no amount of professional intervention may be able to fix the screw-up. So, remember to ask your lawyer first before transferring property.

Other F’s from Bankruptcy Attorneys

Failure
Family Farmer/Fisherman
Financial Fatigue
First
Foreclosure
Foreclosure
Forgiveness of Debt
Forms
Fraud
Fraudulent Transfer
Future Flow Agreement

Image Credit: Leo Reynolds

Forgetting to List a Creditor in Bankruptcy

Forgetting to List a Creditor in Bankruptcy By Jeff Curl

Occasionally I get a panicked call from a client on forgetting to list a creditor in bankruptcy. They received the discharge, but want to know if they are now responsible for the omitted debt. This raises a few issues.

Forgetting to List a Creditor in Bankruptcy - Was the Debt Dischargeable?

It first depends upon the type of debt. Debts in bankruptcy are either dischargeable (you can get rid of it) or nondischargeable (you’re stuck with it). Typical dischargeable debts include medical bills and credit cards. Typical nondischargeable debts include student loans, child support and recent taxes. If the debt omitted was something you could not discharge in the first place like student loans, you are stuck with it no matter what.

Was it a Chapter 7 “No Asset” Case?

But what if it was dischargeable? What if you forgot about the $8,000 credit card you have not used for a year or two? If you filed a Chapter 7 case, but were not able to exempt and keep all of your assets, the debt would survive. Luckily, the majority of those cases are “no-asset” cases. This means you were able to exempt and keep all of your assets; the trustee took nothing from you to pay your creditors.

If your debt was dischargeable in the first place, and if your case was the typical Chapter 7 “no-asset” case, those of us in the Ninth Circuit, including California, are in luck. Here’s some bankruptcy nerd talk: under the Ninth Circuit case of In re Beezley (recently followed by the Bankruptcy Appellate Panel in In re Heilman), the forgotten creditor has no claim against you. Your debt is discharged. It was a no harm, no foul situation because the debt was dischargeable and the creditor would not have received anything even if it was listed.

Take Immediate Action

If the omission of a creditor is discovered while the case is open, the petition should be amended immediately to add the creditor, and that creditor should be given notice as well. This is true even if you filed a Chapter 7 no asset case.