Category Archives: Creditors in Bankruptcy

What Can A Creditor or Party In Interest Do In My Bankruptcy Case To Cause Problems?

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First, what a creditor can do usually does depends upon the chapter of the bankruptcy code you choose to file under. This article will only address some of the things a creditors can do under chapter 7 and chapter 13 of the bankruptcy code. Generally speaking most unsecured creditors to not participate in the average bankruptcy case unless there are allegations of fraud or improper conduct by debtor regarding the extension of credit or the use of the credit account by the debtor. Secured creditors usually do participate in most bankruptcy cases given the person filing for bankruptcy protection has possession of the collateral securing repayment of the loan or debt. Another class of creditors, creditors with unsecured priority claims, may participate depending upon the chapter that is filed.

What if there is an allegation of fraud or some improper conduct?

Once a chapter 7 or chapter 13 case is filed a notice of the bankruptcy case, meeting of the creditors and deadlines is served by the bankruptcy court all on creditors listed in the bankruptcy petition. This notice has a number of dates and deadlines listed on it. One of the most important deadlines is the date to object to the debtor’s discharge or to challenge the dischargeability of specific debts. Under Section 727 of the bankruptcy code a party in interest may object to the debtor receiving a discharge in the bankruptcy case. Under Section 523 a creditor may try and prove that the debt owed to them specifically should not be discharged. This deadline is 60 days after the date of the first schedule meeting of the creditors. The meeting of the creditors is usually held approximately 30 days after the bankruptcy petition is filed. That means there is about 90 days for a creditor or party in interest to conduct an investigation regarding the bankruptcy filer’s income, expenses and assets if there is an allegation of fraud or improper conduct. In the 9th Circuit the 60 day deadline is a hard deadline. If a creditor or party in interest does not file their adversary complaint within that deadline it will most likely be dismissed as late filed. An extension of the deadline to file an adversary proceeding can be requested and granted by the court for cause, but do not expect the deadline to be extended if you have done nothing in the case and waited until the last minute to participate in the bankruptcy case. It is not fair to the debtor for the 60 day deadline to be extended because a creditor’s bankruptcy lawyer or party in interest was lazy, incompetent or negligent in investigating the financial condition of the debtor timely. The Supreme Court of the United States has made it clear that a debtor is entitled to the expeditious handling of all matters regarding discharge. See Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).

The first opportunity to ask questions by a creditor is at the 341 meeting of the creditors

The first opportunity to cause a problem is at the meeting of the creditors. It really is not causing a problem because that is what the meeting of the creditors is for, for creditors to come ask questions and determine if there are any issues to raise or allege the debtor is not entitled to a discharge of their debts, or the debt specifically owed to the creditor for some reason. The meeting of the creditors is a limited forum to ask questions though. In both chapter 7 or chapter 13 cases a creditor will only be given around 5 minutes or less to ask question of the debtor. There are many cases on the calendar and trustees have to keep the calendar moving to a certain extent. If the questions asked by a creditor or their attorney truly raise issues the trustee is interested in the questioning may take longer and the trustee may jump in to question the debtor more too. If a creditor wants to continue their investigation they will need to file an application for a Rule 2004 examination of the debtor.

Rule 2004 Examinations

A rule 2004 examination refers to the section of the bankruptcy code that allows for a party in interest and/or creditor to depose the debtor and request documents. A rule 2004 examination is a very powerful tool because it has a broad scope of what can be requested of the debtor. A rule 2004 has been described as a “fishing expedition” given the broad nature. The scope of the examination may encompass “the acts, conduct, or property or to the liabilities and financial condition of the debtor, or to any matter which may affect the administration of the debtor’s estate, or the debtors right to a discharge period.” See Rule 2004(b). The extent of the inquiry under Rule 2004 is intended to be very broad and permits the party invoking it great latitude of inquiry. See In re Valley Forge Plaza Assoc., 109 B.R. 669, 674 (Bankr. E.D. Pa. 1990). Furthermore, examinations under rule 2004 are allowed for the purpose of discovering assets and unearthing funds.” See 8 Collier on Bankruptcy, 2004.4, 2004-10 (15th ed. 1993).

The actual filing of an adversary complaint under Section 523 or Section 727 of the Bankruptcy Code

A creditor or party in interest may skip attending the 341 meeting of the creditors or conduct as rule 2004 examination of the debtor altogether. I a creditor or party in interest has all the cause or evidence they feel they need to initiate a lawsuit that may do just that. The standard to survive the complaint being dismissed is not a strict standard. To survive a motion to dismiss for failure to state a claim upon which relief can be granted, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Once the complaint is filed a creditor or party in interest will begin the discover process and try and obtain additional damaging documents or information through the discovery process in the adversary proceeding. Whether a creditor or party in interest is successful in taking away a debtor’s discharge entirely or having a specific debt deemed not discharged depends upon many factors and ultimately a favorable ruling by a bankruptcy judge. The goal when filing bankruptcy is to have an issue free case that results in the relief initially sought, an order of discharge signed by the bankruptcy court.

Can I File Bankruptcy If I Have a Payday Loan or Advance?

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Can I file bankruptcy if I have a payday loan or advance? Yes you can. Payday loans are unsecured debts just like a credit card or medical debt. Payday advances are dischargeable. There are some issues though given the nature of the debt. Payday loans are usually to be repaid within a relatively short period of time. Given that payday loans are usually recently incurred when filing for bankruptcy protection there are a few issues for bankruptcy lawyers to discuss before filing for bankruptcy protection. The reality is few payday loan companies pursue nondischargeability claims At the same time, past results are not necessarily indicative of future results.

1. Payday Loans Are Horrible

Before discussing the pitfalls of filing for bankruptcy when you owe payday loans let us examine payday loans in general and how the work. Payday loans are supposed to be short term loans until the borrower gets paid next. The percentage rates are usually disgustingly high and should be illegal. We have documentation of a percentage rate of 1000%. To obtain a payday loan or advance it usually requires some sort of regular income of some significance. If make $200 a week you will most likely not qualify for an amount larger than that. Once you are approved for an amount to borrow, you will be asked to write a post-dated check for the amount borrowed to be cashed when you get paid. The original loan will have some sort of fee ranging from $40 to $100 for the loan. If you are unable to pay the loan back when you get paid some companies will allow the loan to be renewed for another high fee ranging from $40 – $100. What about that post-dated check you wrote? If the check bounces your bank will charge you fees too. Not paying the payday advance or loan on time will start a vicious cycle of increased fees. Borrowers commonly have to continue to obtain a new payday advance or loan to keep their bills paid while continuing to incur more and more fees.

2. Recently Incurred Debts May Not Be Discharged

Debts incurred or obtained close in time to filing for bankruptcy raises a number of issues. The problem is that the payday loan company may have an argument that you never intended to pay back the loan given you filed for bankruptcy so close in time to obtaining the loan. Bankruptcy Code Section 11 U.S.C. 523(a)(2)(C) provide for a 90 day look back for cash advances and payday loans. The payday loan company would have to file an adversary lawsuit against the bankruptcy filer alleging the payday loan should not be discharged given it was incurred within 90 days of filing the bankruptcy case. Bankruptcy Code Section 11 U.S.C. Section 523(a)(2)(A) governs debts incurred from fraud. If the case is filed within the 90 days of incurring the loan the payday loan could argue with circumstantial evidence you never intended to pay back the payday loan.

3. Payday Loans With Post-Dated Checks Are A Problem

Another problem is the post-dated check that was provided to the payday advance company. Section 326 of the Bankruptcy Code governs the automatic stay that becomes effective as soon as your bankruptcy attorney files your bankruptcy case. The automatic stay stops any and all collection activity. The problem is that Section 362 does not stop the presentment of a negotiable instrument, or a post-dated check. You need to research your circuit cases regarding this issue to determine if trying to deposit the post-dated check is a violation of the automatic stay or not.

While it is rare for a payday loan company to sue a bankruptcy filer for an unpaid payday advance or loan it is important to be fully advised of the potential ramifications or filing for bankruptcy protection with a recent payday loan or advance. It is more of a cost benefit analysis. If the payday loan is only $500 it does not make much sense to spend thousands of dollars to prove the loan should not be discharged. It does happen though.

Creditor in Bankruptcy

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If you are owed money and the person or business that owes you the money filed for bankruptcy you are a creditor in bankruptcy. You need to pay attention to the mail you receive and mark the various deadline on your calendar. You should seek counsel of bankruptcy lawyers in your area as well for more detailed information about the bankruptcy process. A common problem is how much should be spent trying to collect a debt now that the person or business has filed for bankruptcy protection? The answer is it depends. For the most part few creditors in bankruptcy participate in the process. It just costs too much to pay an attorney to monitor or participate in the bankruptcy case and get nothing from the bankruptcy estate in return.

The automatic stay becomes effective as soon as the person or business files their bankruptcy petition. You may not take any further collection action without permission from the bankruptcy court. So what now?
The first issues is what chapter of the Bankruptcy Code did the person or business filed under? If a chapter 7 case was filed then the likelihood of payment from the bankruptcy estate is unlikely. If the person or business filed a reorganization bankruptcy under Chapter 13 or Chapter 11 payment from the bankruptcy estate of some amount is likely.
The second issue is whether this is a business debt or a personal debt that is owed. If the debt is for the sale of goods to a business you may have additional rights such as reclamation. Reclamation rights belong to creditors to take back goods already sold to the business that has filed bankruptcy and not paid for the goods. There are specific time periods regarding reclamation.

If there are assets to distribute to creditors you will be asked to file a proof of claim. The proof claim provides the amount owed and why, with documentation attached to the proof of claim to prove the amount owed and why. In a chapter 11 or chapter 13 you may have to object to confirmation of the plan of reorganization. If you are not being treated properly based upon your type of claim or debt you need to objection to confirmation. Your objection will either be overruled or sustained.

If the case is a no asset no bar date Chapter 7 there is really nothing for you to do unless you believe you were the victim of fraud or some other argument to not have the debt discharged. You will need to hire bankruptcy attorneys to file an adversary proceeding on your behalf and argue the debt owed to you should not be discharged.