The dreaded bankruptcy notice! What does one need to know when you receive such a notice?
- Who is the debtor? Who is their attorney of record? Is there an attorney of record or did they file on their own? Usually indicated as “In re:” for the debtor.
- Which Chapter? 7, 11, 12, 13?
- Is a trustee assigned yet? If so who is it?
- When was it filed and in what court?
- When was the automatic stay imposed?
- When is the first meeting of the creditors?
- When is the last date to file a claim?
- What is the last date for filing a complaint to determine the dischargeability or the debt?
- And when is the last date for filing objections to a discharge?
Under Title 11 of the United States Code there are 4 types of bankruptcy which in many cases answers the question as to who is the debtor and which chapter is filed:
- Chapter 7 – Liquidation -Companies, married couples and individuals are allowed to file. This does not mean that everything the entity owns is sold for the benefit of creditors. There are both federal and state laws allowing for certain exemptions, such as their primary residence or personal items such as clothing, etc. Once non-exempt assets are sold (if there are any) creditors are paid on a pro rata basis from the proceeds. Obviously there not all creditors get paid due to a very technical set of rules as to who is secured, priority, administrative and non-secured. As a result many debts are forgiven or discharged. Once a person files a Chapter 7 he may not file again for usually 7 years. There may also be debts not “forgiven” such as alimony, child support, taxes, and even some student loans. If you have a lot of those types of debts a Chapter 13 may be better.
- Chapter 11 – Reorganization – the main differentiation here is that while similar to a Chapter 13, there are no limits regarding the amount of money owed by the debtor.
- Chapter 12- Adjustments of Debts of a Family Farmer with regular annual income
- Chapter 13 – Adjustments of Debts of an Individual with regular income –both 12 and 13 are very similar as long as the entity has steady, reliable income (this discussion is too brief to explain the complicated mathematical calculations that go into determination of unsecured vs secured debt). Once filed a trustee is assigned to assist the debtor in development of a proposal for repayment. The court maintains control and final disposition to accept, reject, or alter the plan. Once accepted, the plan can last from 3-5 years. Most of the time the debtor is only repaying a percentage of what is actually owed…many times as little as 30-50 cents on the dollar.
The actual notice of bankruptcy will provide the name of the debtor, trade names and aliases used in the past. The debtor’s address and if the debtor is represented by an attorney their name and address.
The notice will tell you the Chapter of the type of bankruptcy filed. In a Chapter 7 case, all of the debtor’s assets are liquidated and disbursed to creditors in a particular hierarchy order. In a Chapter 11, a business entity attempts to reorganize. Chapter 13 permits an individual with regular income to design a plan to pay his debts under court supervision.
The Notice will also indicate the bankruptcy court the debtor has filed it’s petition. A creditor must file what is known as a proof of claim in the proper court.
Immediately upon the filing of bankruptcy the court imposes a stay on all actions by creditors…that includes all creditors and their third party collectors and attorneys. To take action thereafter to collect the debt after the filing date without court approval could be held as contempt of court and you could be subject to severe court imposed penalties.
Thereafter, the debtor must appear and answer under oath as to enable creditors to determine if assets have been improperly converted or concealed, of if there are grounds to object to a discharge.
The notice will also indicate a bar date by which claims against the debtor estate must be filed. Claims filed after that date may be disallowed by the court.
The whole purpose of filing bankruptcy for an individual is to seek a fresh start by having their debts discharged in the bankruptcy proceedings. A creditor always maintains the right to dispute such discharge of specific debts by filing a complaint or they may challenge the discharge in its entirety. All of these available objections must comply with court imposed date deadlines.
The most important thing for a creditor to remember is that if the Court provided for a Proof of Claim to be filed, that they do so well in advance of the bar date in order to preserve whatever rights you have to repayment of your debt. Ask your collection agency or attorney to assist you so as to protect your rights.