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The First Fight: Stockton California Bankruptcy Case 12-32118

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On June 29, 2012, the City of Stockton filed a motion to disclose information about the failed neutral evaluation process (NEV).  The NEV was required to take place under California Law, California Government Code 53760.  The NEV process began on March 27, 2012, and ended approximately 90 days later after an extension of time to try and continue negotiations to avoid bankruptcy.  The NEV process concluded on June 25, 2012.  Code section 53760 allows for disclosure of NEV information under certain circumstances.  If it is determined that the confidential information disclosed during the NEV process is necessary to prove a municipality is eligible to be a debtor under Chapter 9 of the Bankruptcy Code.  This is the reason the City of Stockton sought permission from the Bankruptcy Court to release confidential information.  Stockton wanted to provide the Bankruptcy Court with a 790 page document that details their financial circumstances, the length of the negotiations and the participants.  Stockton needs to prove it filed its bankruptcy petition in good faith pursuant to Bankruptcy Code section 921(c).

A number of parties that participated in the NEV process opposed Stockton’s request including Wells Fargo National Association.  Their limited objection argued that Stockton’s request only sought permission for Stockton to release information about the NEV process and did not ask for permission for all parties that participated in the NEV process to disclose their information.  If only Stockton could disclose this information then it would look one sided.  The concern was that Stockton would merely pick and choose the information to disclose and not show the whole picture of the failed negotiations.

A hearing was held regarding Stockton’s request on July 6, 2012.  The Bankruptcy Court chose to deny Stockton’s request and a memorandum of decision on July 13, 2012.  The Court implemented a protective order on the confidential information and take an incremental approach to approach to allowing any of the NEV information to be disclosed.  The Court reasoned that there is no evidence that Stockton needs to disclose confidential information to prove its eligibility to be a debtor under Chapter 9 yet.

Unlike a consumer or business filing for bankruptcy protection under Chapter 7 or Chapter 13, an order for relief is not immediately entered when a municipality files for protection under Chapter 9.  A municipality must prove it is eligible for relief and that the petition was filed in good faith.  This will be the next major fight in Stockton’s bid to seek relief under the Bankruptcy Code.

Why Did Stockton California File For Bankruptcy Under Chapter 9

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On June 28, 2012, the City of Stockton, California, filed for bankruptcy protection under Chapter 9 of the Bankruptcy Code, Bankruptcy Case Number 12-32118, in the Bankruptcy Court for the Eastern District of California.  After complying with California Government Code Section 53760 they were unable to negotiate with creditors and avoid filing bankruptcy.  So what happened here?  Why did Stockton California file bankruptcy?

In court documents the city refers to the collapse of the housing market and calls the mortgage crisis the Great Recession.  Like many individuals that choose to file bankruptcy Stockton tried to work things out.  The city renegotiated labor agreements, depleted reserves, imposed compensation reductions, reduced and eliminated services, missed bond payments and even deferred payments to retiring employees in an attempt to avoid bankruptcy.  Sounds like what an individual does to avoid bankruptcy too.  Many of our clients have sold jewelry, depleted their retirement accounts, cut back on bills such as cable or internet, missed payments on credit cards and anything else to avoid filing bankruptcy.  Unfortunately bankruptcy does become the best financial decision at some point.

Stockton’s retirement costs are out of control and have been for some time.  Stockton’s largest creditor by far is the California Public Employees Retirement System.  They owe PERS an estimated $147 million in unfunded retirement benefits.  The next largest creditor is Wells Fargo Bank.  The city owes Wells Fargo Bank approximately $126 million for pension obligation bonds.  What are pension obligations bonds?  Pension obligation bonds are basically a way to fund retirement benefits when a city does not actually have the money to pay for the benefits.  The bonds pass on the cost to future generations in the hope that the public entity will be able to continue to make the monthly payment for the bonds and continue to operate normally.  If a city does not set aside enough money during an employee’s career so that the employees lifetime retirement benefits are paid in full by the time the employee retires the city has to find the money somewhere.  It is more or less a Ponzi scheme at the tax payers’ expense.

Pension obligation bonds usually have low percentage rates.  The rate could be as low as 4 percent or as high as 7 percent.  Some government entities have even used these borrowed funds to invest and obtain a higher rate of return, say 8 percent, and in theory make money and be able to fund their retirement costs in the future.  It is basically gambling with borrowed money.  This is a recipe for disaster when property taxes and general funds do not continue to grow.  Many other municipalities across the United States are and will face the same problems Stockton is facing.

It Appears California’s New Neutral Evaluation Process is a Failure Just Like Debt Consolidation is a Failure

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Stockton California is the first municipality in California, that I am aware of, that has had to comply with AB 506 or Government Code Section 53760 before filing a Chapter 9 municipal bankruptcy.  As of this moment Stockton has not filed for bankruptcy protection yet.  What we do know is that the Neutral Evaluation process failed.  The city was not able to work out agreements with enough of their creditors to prevent having to file for bankruptcy protection.

Why the Neutral Evaluation process envisioned by the California legislature will most likely fail to prevent municipal bankruptcy cases are the same reasons why debt consolidation fails for our clients time and time again.  Creditors rarely choose to actually take less and work out a reasonable settlement that is possible for the city or person that owes the money.  It is also almost impossible to work something out with each and every creditor.  Unfortunately there always seems to be a creditor that files a lawsuit.  Credit card companies force our clients into bankruptcy just like the City of Stockton’s creditors are forcing them to file bankruptcy.  It is no different.

What happens when you miss a few credit card payments?  The first thing that will happen is late charges will be added to the amount owed.  Then your percentage rate will skyrocket to well over 20%.  Both of these things make it very difficult if not impossible for someone who is already having difficulty making the minimum payment to ever get out from under the debt.  Is this in the credit card company’s best interest?  Common sense would tell you no.  They are not making it easier to pay back the debt, but much more difficult.  So if you try and reach a settlement with them to make the terms easier for you to pay back the debt and avoid bankruptcy you will most likely be unsuccessful.

The City of Stockton was forced by California State Law to try and do some sort of debt settlement with their creditors.  The creditors new the other option would be bankruptcy and they still said no to better terms to keep the City of Stockton out of bankruptcy.  They would rather take their chances after the City of Stockton files for bankruptcy protection.  For some reason large credit card corporations and it appears creditors’ owed money by the City of Stockton have crunched the numbers and bankruptcy is better for them too.

HOA Special Assessments and Bankruptcy

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The issue of how homeowner’s association dues are treated when the homeowner files bankruptcy is for the most part settled law.  HOA dues due pre-filing are dischargeable.  HOA dues that are due post-filing are not dischargeable.  Section 523(a)(16) makes sure of this in a Chapter 7 case and provisions of the bankruptcy code in a Chapter 13 do the same.  If you stay you must pay.  The obligation to pay post-petitions is a covenant that runs with the land.

What about a special assessment of $20,000 for painting the complex or repairing a fence surrounding the association?  Was it assessed pre-petition as a lump sum just like the dischargeable HOA dues were assessed pre-filing?  Was there a lien recorded to secure the special assessment?  Was an installment agreement entered into to pay the $20,000 over year?  Some of the installment payments were due pre-filing and some of the installment payments are due post-filing.

If the special assessment was assessed pre-filing and in a lump sum without a lien being recorded it should be dischargeable just like dischargeable HOA dues that were unpaid before filing bankruptcy.  The issue of whether post-petition HOA dues are dischargeable has been litigated and lost.  The post-petition dues must be paid.  There are issues whether the dues are dischargeable if you are not occupying the home and not collecting rent though.

The biggest issue with attempting to discharge a special assessment is most likely a timing issue.  If you attempt to discharge a special assessment in a Chapter 7 bankruptcy case and the special assessment was assessed a couple months before filing the Chapter 7 there are issues under section 523 and the HOA could file an adversary complaint alleging fraud and other causes of action.  In a Chapter 13 case a HOA could argue that the covenant to pay runs with the land and to stay you need to pay the special assessment just like you will need to pay the post-petition HOA dues in a Chapter 13 case.

A larger concern is how your neighbors will treat you.  If you live in a homeowner’s association and discharge some of your unpaid dues word will get around.  If you also discharge a $20,000 special assessment and continue to live there your neighbors will most likely hate you forever.  They will be stuck with paying for your portion of the repaired fence of repainting of the association while you will not.  The long-term effect of discharging the special assessment may far outweigh the financial benefit in the short-term.  Like all legal matters, it depends upon the circumstances.

The Argument For Not Filing an Asset Chapter 7 Bankruptcy Case

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First let us establish what an asset Chapter 7 bankruptcy case is.  An asset Chapter 7 bankruptcy case means that there are assets that cannot be exempted from the bankruptcy estate and creditors are entitled to the value of these unexempt assets.  The Chapter 7 trustee assigned to the case will administer the bankruptcy estate for the benefit of creditors.

So what is the argument against filing an asset Chapter 7 bankruptcy case?  The issue is what is in the best interest of creditors, or those who are owed money?  Let’s say the assets available to creditors’ totals about $20,000.  The Chapter 7 trustee will receive 25% of the first $5,000; 10% of the next $45,000; 5% of the next $950,000; and 3% of the balance.  This is a sliding scale.  So an estate totaling $20,000 the Chapter 7 trustee will get approximately $3,500.  These fees are statutory.  In contrast a typical Chapter 13 trustee will receive about 10% of the estate for administering the case depending upon the jurisdiction.  So if the estate totals $20,000, the Chapter 13 trustee will receive approximately $2,000 for administering the estate.

So what is the problem here?  There is not a huge difference in the trustee fees right?  Well, in the Chapter 7 case the trustee will most likely hire an attorney to assist with the case.  Most attorneys that work for trustee’s charge anywhere from $300 to $600 an hour.  If the attorney for the Chapter 7 trustee spends a mere 10 hours on the case in the example above, the attorney for the Chapter 7 trustee would receive around 25% of the total estate of $20,000.  So the Chapter 7 trustee gets about $3,500 plus their attorney fees of $5,000 equals $8,500 in fees.  This represents almost half of the money available to creditors.  In contract the Chapter 13 trustee only receives about $2,000 total.  What is in the best interest of the creditors then?

To be fair, most bankruptcy attorneys must charge higher fees for a Chapter 13 given the additional work that is required.  So the bankruptcy attorney fees in theory could equal what the Chapter 7 trustee’s attorney may charge.  But most jurisdictions cap what can be charged for a basic Chapter 13 case.  These caps can vary widely depending upon the jurisdiction.  Also to be fair, some Chapter 7 cases absolutely need the trustee to hire an attorney to help administer the bankruptcy estate.  This is especially true when there are issues regarding the value of assets and what assets are part of the bankruptcy estate or not.  Recent there has been news from major news organizations about the amount bankruptcy professionals charge in Chapter 11 reorganization cases.  Some of the hourly rates are as high as $1,000 an hour.  It is hard to balance what is in the best interest of creditors, especially when most creditors do not participate in small asset Chapter 7 cases and Chapter 13 cases.

I Received A Notice of Possible Dividend, What Now?

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The vast majority of Chapter 7 bankruptcy cases are no asset cases.  This means that the person filing for bankruptcy protection does not own assets that cannot be protect and kept.  California has two sets of exemptions that protect assets, or exempt them from the bankruptcy estate that is created when filing bankruptcy.  But what if someone owns $75,000 in stock or bonds and has $150,000 in debt.  There is no exemption to protect $75,000 in a normal stock trading account.  If this person files for a Chapter 7 bankruptcy a portion of the stock can be protected depending upon the circumstances and the rest will be part of the bankruptcy estate to be paid to those who are owed money.

This process is started by the Chapter 7 Trustee appointed to administer the bankruptcy estate filing a “Notice of Possible Dividend” (NPD) to all they creditors listed in the bankruptcy petition that are owed money.  The NPD is filed to give notice to everyone that there could get some of their money back from the bankruptcy filer.  The money or amount received is called a dividend.  The NPD requests that creditors file proof of claims, or proof of the amount they believed they are owed by the bankruptcy filer.

This may seem like a straightforward process, but there have been lawsuits proving that creditors have filed fraudulent claims to get paid more than they are actually owed.  The claims process includes procedures for objecting to a claim for payment that is made.  Proofs of claims are supposed to include documentation that proves the amount that is owed at the time the bankruptcy case was filed.  Unfortunately many claims are filed will a simple summary of the accounting that proves nothing.  Anyone can write numbers on a piece of paper and attach it to the claim.  It proves nothing and should be objected to.  If you believe a creditor in your bankruptcy case filed a fraudulent claim you need to tell your bankruptcy lawyer to object to it.

Sometimes a trustee files a NPD because the merely think there are assets available to creditors.  Once they file the NPD they will then further investigate the value of the bankruptcy filers assets and determine if in fact creditors can or should receive a dividend.  This is okay as long as the trustee actually does something after filing the NPD.  What if a trustee files a NPD and then does nothing?  This is a very troublesome occurrence and should never happen.  When this happens creditors waste valuable time and money filing claims for nothing.  The bankruptcy court cannot sign the order of discharge or close the bankruptcy case.  If this has happened in your bankruptcy case you need to consult your bankruptcy attorney regarding what can be done about it.

Is Debt Consolidation a Good Idea? Does Debt Settlement Work?

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Well, no, usually not.  Debt settlement is different than debt consolidation.  Debt settlement is offering lump sum cash payments to settle the debt and have the credit card company forgive some of the debt owed.  You absolutely do not need to pay someone to do this.  The problem most people run into is they do not have the cash to settle all of their debts.

Let me tell you about debt consolidation.  First of all, you do not want to do business over the phone with a company in Florida or Southern California if you live in the Bay Area or another state.  It is best to be able to go to a business’ offices and look the person in the eye you will be giving your hard earned money to.  Especially when considering a debt consolidation company or bankruptcy for that matter.  I think that goes for everything these days unfortunately, unless it is a large corporation like Amazon.com.   I cannot tell you have many clients we have had to fix their bankruptcy cases because they chose to use some attorney that is hundreds of miles away and that they have never met.  If something goes wrong what jurisdiction would you have to sue the debt consolidation company in?  I can tell you that the agreement you sign will probably have a jurisdiction listed that is where the company you retained is located and not where you live.  That is a huge problem if you have to sue them in Florida or some other part of California where you do not live.  It makes the cost of litigation sky rocket and makes it not worth suing to begin with most of the time.  This is what these companies are counting on too.  If you pay them $1,000 – $4,000 or make a monthly payment to them at around $100 a month, are you going to pay an attorney $200 plus an hour to sue them in the hope of getting your money back?  Litigation is expensive and the cost of litigation is unfortunately a roadblock to getting justice.

Second, debt consolidation is the wild wild west.  There is unfortunately little government oversight of these companies.  If you are thinking about calling a debt consolidation company please Google their name before calling.  Google is very good at what they do and will find all the information you need about the company.  Also Google the companies name and the word complaints to see what pops up.  Unfortunately anyone can post negative reviews on many different types of websites without a shred of truth to the complaint.  It is a big problem, but at the same time, if there is complaint after complaint year after year you know something is not right with that company.  You can also Google the companies phone number to see what comes up.  Many times these debt consolidation companies change names over and over again to trap new unsuspecting people.  In my opinion any company asking you for money to provide any type of debt consolidation is a crook.  You can do it yourself for free and see what happens.  When the mortgage crisis first hit many crooks started loan modification companies and charged thousands of people upfront fees for loan modifications without doing anything to obtain loan modifications for the clients.  The percentage of successful loan modifications is so low that California passed a law that makes accepting upfront fees for loan modifications a criminal act.  Loan modification companies in California may only accept a fee once a loan modification is signed and recorded.  The same needs to happen under Federal Law for debt consolidation companies.  They should only get paid if they actually do what they say they can do.  Right now that is not the case.

A debt consolidation company will say they can negotiate a better percentage rate of reduce the amount you owe to a credit card company.  Ask them for proof in writing from the credit card company regarding any reduction in amount owed or percentage rate.  Do not trust what they send you on their letterhead.  Anyone can list your credit cards and reduce the amount owed and the percentage rate to show you how you can save money.  Again, why can you not do that yourself?  Believe me, you can.  Bankruptcy lawyers do not worry about these issues when filing bankruptcy cases for people in need.  Everything bankruptcy attorneys do is pursuant to the Bankruptcy Code and by court order.

Finally, if you do not pay your credit cards for long enough credit card companies will send you settlement offers for lump sum cash payments without paying anyone anything.  The problem is that usually one of your credit card companies will sue you and that is when you should give a bankruptcy attorney a call.  Most people do not want their wages garnished or bank accounts levied on to satisfy a judgment.  Others are more proactive and seek the advice of a bankruptcy lawyer well before a lawsuit is filed to stop the harassing phone calls and tie everything up in a nice neat bow and just move on with life.  Everyone is different and there is no right or wrong way to approach your debts if you can no longer pay them each month.  Just please, please, please thoroughly investigate a debt consolidation company before giving them any money.  I hate it when a client comes in and has paid a debt consolidation firm thousands of dollars for nothing and I have to file bankruptcy for them to once and for all make it all go away.  To add injury to insult, our fees for a no asset Chapter 7 bankruptcy case are usually far less than what a debt consolidation company charges.

I Received a Notice of Chapter 7 or 13 Bankruptcy Case, Meeting of Creditors and Deadlines

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The Notice of Chapter 7 or 13 Bankruptcy Case, Meeting of Creditors and Deadlines is the official notice to all creditors that a bankruptcy case was filed.  This notice will list the date, time and location of the 341 meeting of the creditors.  The notice also provides the deadlines to file a proof of claim or file an adversary proceeding objecting to discharge of debts.  Each one of these dates or deadlines are extremely important in every bankruptcy case.

The first thing to look for is the bankruptcy case number in the upper right hand corner of the first page.  A couple of lines below the case number you will see the date the bankruptcy case was filed towards the middle of the page.  Below the case number will be the name and address of the person who filed for bankruptcy protection with the person’s last four digits of their social security number to the right.  The next section contains the name and address for the attorney who represents the person who filed bankruptcy and the name and address of the trustee assigned to administer the bankruptcy estate, if any.

Towards the middle of the first page you will see the actual date, time and location of the 341 meeting of the creditors.  This most likely will be the only time the person filing bankruptcy will meet with the trustee assigned to the case and it is the first and cheapest way for a creditor to question the person who filed bankruptcy if necessary.  For the most part it is a waste of time and money ask a person questions at the 341 meeting of the creditors.  Most trustee’s will only allow approximately 5 minutes of questioning before moving on to the next case.  Most trustees have very crowded calendars and eventually they will have no time to eat lunch if the trustee gets behind.

The bottom half of the notice contains the deadline to object to the discharge of a debt or debts.  This deadline should be sixty days after the date of the first schedule meeting of the creditors.  This deadline can be extended by order of the court.  Next will be the deadline to object to exemptions used to protect the assets of the bankruptcy filer.  Lastly, the notice provides information about filing a proof of claim.  In a Chapter 7 case proof of claims are only asked for when the trustee file a notice of possible dividend.  The notice of possible dividend invites creditors to file their proof of amounts owed to possibly receive money from the bankruptcy estate.  The second page of the notice provides an explanation of certain bankruptcy terms.

Add Jamal Lafitte Lewis to the List of Pro Athlete and Celebrity Bankruptcy Filings

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On April 3, 2012, former professional football player Jamal Lafitte Lewis filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code in the Northern District of Georgia, Bankruptcy Case No. 12-58938.  Jamal Lewis played for the Baltimore Ravens for years and retired from the NFL in 2009.  While Mr. Lewis has sought protection from his creditors by filing bankruptcy, Chapter 11 is a reorganization of his debts and not necessarily a discharge of debts.  Most likely some of Mr. Lewis’ unsecured debt will be discharged though.  Time will tell if Mr. Lewis actually files a disclosure statement and plan.

Despite having retired from the national football league Mr. Lewis has listed his monthly income as $35,000 a month.  This is impressive given the number of years Mr. Lewis has not played football.  It would appear from the bankruptcy schedules and statements that Mr. Lewis is facing a number of issues in his business life.  In November 2011 $95,000 was seized from the bank accounts of one of his companies, JLew Enterprises, LLC, a company set up for Mr. Lewis’ speaking and appearance engagements.  If $95,000 was seized from JLew Enterprises, LLC, the company was most likely sued and a judgment was obtained, or a creditor obtained a prejudgment writ of attachment to seize the funds.  Seizing funds prior to obtaining a judgment is an extraordinary remedy and does not bode well for JLew Enterprises, LLC.

Mr. Lewis’ schedules and statements also list a theft of $3,000,000 from Mr. Lewis’ trucking company named All American Xpress, Inc. between 2006 – Present.  It would appear that Mr. Lewis’ has been a victim of embezzlement or some other sort of theft related to his trucking company.  One of the most overlooked reasons why someone chooses to file for bankruptcy protection is when they are victimized by others.

Unlike many of the celebrity and pro-athlete bankruptcy filings Mr. Lewis’ has significant personal assets.  Schedule B lists approximately $12 million in assets including 47 foot powerboat, 2005 F-650 XUV trust, 2008 Mercedes GL 550, 2009 Mercedes CL 63, a $250,000 judgment against Bradley Lowery, Jr.  Some of these assets have loans and liens secured against the assets.

The judgment against Bradley Lowery, Jr. resulted from another unfortunate business dealing.  According to court documents, Bankruptcy Case No. 09-06771, Mr. Lewis entered into a contract with Mr. Lowery to build a home at 568 Trabert Avenue, Atlanta, Georgia.  Mr. Lowery received approximately $680,000 of the $2.4 million Mr. Lewis borrowed to build the home.  Mr. Lewis then sued Lowery in Superior Court. The Superior Court Order and subsequent judgment awarded Lewis $1,314,694 in actual damages, $304,000 in consequential damages, $4,010 in attorney’s fees and $250,000 in punitive damages. Lowery then filed for bankruptcy protection himself in October 2009.  Mr. Lewis and his bankruptcy attorney then sued Mr. Lowery seeking a determination that his state court judgment against Mr. Lowery not be discharged in the bankruptcy.  Mr. Lewis was successful, but just because you have the right to collect does not mean you are going to collect.  Mr. Lewis’ schedules list that the judgment against Mr. Lowery is uncollectable.  So now after all the legal wrangling Mr. Lewis is left holding a loan of over $2 million and a partially built house worth $500,000.

Another interesting note in the bankruptcy case is the listing of a claim against the Baltimore Ravens, Cleveland Browns and the NFL for worker’s compensation and personal injury.  It is unclear if Mr. Lewis have filed hit own lawsuits or is part of the class action lawsuits we have all heard about regarding concussions.

I tell clients every day that there are a millions reasons why people file bankruptcy.  It would appear that between Mr. Lewis’ unfortunate experience trying to build a home and the alleged theft of $3,000,000 from his trucking company were too much.  Currently there is a motion to dismiss Mr. Lewis’ bankruptcy case.  Hopefully Mr. Lewis and his bankruptcy attorney will do what is necessary for the case to continue and Mr. Lewis can move on to happier things.

What is This Notice to File a Proof of Claim I Received?

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If you have receive a notice of possible dividends or notice of 341 meeting of the creditors, then someone who owes you money has filed for bankruptcy protection.  You should seek the counsel of an experienced bankruptcy attorney for advice.  Do not just show up at the 341 hearing yourself if you are not sure what is going on.

One of the most important parts of the bankruptcy process when there are assets available to creditors is the claims process.  The vast majority of bankruptcy filers do not have assets that are available to the people they owe money.  All assets can be protected or exempted.  But what about the cases in which there are assets available to creditors?  How do they get paid and what amount?  A proof of claim must be filed that proves how much was owed to them at the time the bankruptcy case was filed.

Federal Rule of Bankruptcy Procedure 3001 provides the rules for the filing of a proof of claim and what documentation must be provided to prove how much is owed.  In asset Chapter 7 bankruptcy cases the trustee assigned to the case does not ask for proof of claims to be filed until they file the notice of possible dividends.  Once this notice is filed then creditors have to file their proof of claims to be paid in the case.  In a Chapter 13 bankruptcy cases we already know there are assets available to creditors.  All Chapter 13 bankruptcy cases have either money or assets available to creditors, so creditors are asked to file their claims with notice of the meeting of the creditors.

The deadline for normal creditors to file a claim generally should not exceed nineties days after the first date of the 341 meeting of the creditors.  Government entities such as the Internal Revenue Service are provided more time to file a claim.  A frustration of many bankruptcy lawyers is how long it takes creditors to file their claims sometimes.  Not knowing how much is owed on secured claims or priority unsecured claims at the time the case is filed can delay confirmation of the Chapter 13 Plan.

Sometimes debts are transferred or sold to multiple parties.  Other times creditors file claims that are just not accurate.  Whether a creditor tries to get paid more than they are entitled to or just does not provide the necessary documents to prove their claim; an objection to the claim should be filed if any inaccuracy exists.  The evidentiary effect of filing a claim is that if the proof of claim meets the rules it will constitute prima facie evidence of the validity and amount of the claim.  If you do not object the claim is assumed to be accurate.  There has been litigation regarding collection agencies filing junk claims to get paid nominal amounts.  If the collection agency does this in a thousand cases and merely receives $50 from each case, they will have fraudulently received $50,000.  The good news is most Chapter 13 Trustee’s also review the filed claims and will object to some on behalf of the bankruptcy estate under certain circumstances.