Q: What is the automatic stay?
A: This is an
injunction that goes into effect automatically upon the filing of a
bankruptcy. It strictly prohibits the commencement or continuation of
any acts to collect on a debt that arose prior to filing the
bankruptcy. This includes enforcement of judgments, creating or
perfecting liens, and many other actions. (It does not apply to
collecting alimony maintenance and support).
Q: Can I still try to collect on a judgment after the debtor files bankruptcy?A:
No. However, you may have rights to pursue in the bankruptcy depending
on what chapter was filed and whether you are secured by any of the
debtor's property.
Q: I hold a trust deed on the debtor's
house and I am in the process of foreclosing when a bankruptcy is
filed. What should I do?A: First of all, you cannot proceed
with the foreclosure. What you do next depends on what chapter the
bankruptcy case was filed under and what the debtor's intentions are
with respect to the property. If the property is the debtor's principal
residence and he filed a Chapter 13, he will be required to stay
current with your payments from that point forward and propose a plan
to repay the past due amounts. You should either obtain a copy of the
debtor's statement of intentions or contact the debtor's attorney to
find out what his plans are with respect to your collateral. If the
debtor filed Chapter 7, you can obtain permission from the court (via a
Motion for Relief from the Automatic Stay) to allow you to proceed with
your foreclosure.
Q: Can the debtor lien strip (reduce the value of) or remove my lien against his/her real property?A: If the real property is the debtor's principal residence, only under the following circumstances:
1.
The debtor filed a Chapter 13. 2. Your lien is a junior, non-purchase
money debt. 3. The value of the real property is LESS than the sum of
all senior liens.
If the real property is not the debtor's
principal residence the lien can be partially or fully avoided
depending on the value of the property. (Again, only in ch. 13).
If
you have a judgment lien (rather than a consensual trust deed based on
a loan) against the debtor that has attached to her property prior to
the filing of the bankruptcy case, the debtor may be able to avoid your
lien even in a chapter 7 if it impairs the debtor's homestead
exemption as that term is defined in the bankruptcy code, based on the
value of the property and amount of senior liens and encumbrances on
the date the bankruptcy case is filed..
Obviously this is a tricky area of law and you should consult with an attorney if you are faced with any of these scenarios.
Q:
I'm an unsecured creditor. How do I make sure the debtor is paying
everything he should or that he has included all his assets?This
depends on what chapter is filed and how much you want to spend
investigating everything. The bankruptcy papers that are filed may be
obtained from the clerk of the court. You can review these papers to
see if anything seems inaccurate to you. You may also obtain court
approval to take the debtor's deposition if you wish to inquire in more
detail as to the debtor's assets and debts.
Q: What types of debts can be prevented from being discharged in a chapter 7 case?A: There are many, but a few of the basic ones are:
1. Debts incurred by fraud or false pretenses;
2. Debts incurred by a false statement in writing (such as false credit application)
3. Debts incurred by embezzlement or larceny;
4. Spousal support or child support obligations
5. Debts incurred by willful or malicious injury
6. Debts resulting from death or personal injury by debtor operating a motor vehicle while intoxicated.
7. Criminal fines and restitution.
8. Marital Equalization obligations.
These
are the main areas for objection. For some of these you MUST file a
complaint within the required time period set forth in the bankruptcy
code in order to prevent the debtor from discharging your debt. As in
any case, if you think you have grounds for objecting, you should
contact an experience attorney immediately.
Q: What types of debts can be prevented from being discharged in a chapter 13 case?A: The same as listed above for Chapter 7, except for the marital equalization payments.
Q: What are the criteria for objecting to the debtor's discharge in total?A: The debtor's entire discharge (of all debts) can be denied if it is proven at trial that:
1.
The debtor, with intent to hinder, delay or defraud, transferred,
destroyed, or concealed property within one year prior to filing the
bankruptcy, or after the filing of the bankruptcy;
2. The debtor
concealed, destroyed, falsified or failed to keep and preserve books
and records showing debtor's financial position.
3. The debtor knowingly made a false oath or account, presented a false claim, etc.
Again,
there are many more of these, but the above are the basics. It is far
more difficult to prevail on an objection to the debtor's entire
discharge than it is to object based on just the debt to you.
Q: I am in the middle of a lawsuit when the defendant files bankruptcy. What happens now?A:
The lawsuit must not proceed unless and until you obtain permission
from the bankruptcy court. There may or may not be reasons for doing
this (such as to determine, i.e. liquidate, the amount that is owed to
you).
Q: I'm owed a substantial sum of money by a debtor and
she files bankruptcy. Next, I get a letter from the bankruptcy trustee
demanding that I return money the debtor paid to me within the 90 days
prior to the bankruptcy case being filed. How can this possibly be
legal and what can I do?A: You have been bitten by the
preference bug. In order to maintain some semblance of equality, the
bankruptcy code does not allow a debtor to prefer one creditor rather
than another by repaying some creditors before the bankruptcy is filed
but not others. Thus, any payments made on a prior debt within 90 days
before a bankruptcy filing (or within one year if you are a relative or
insider of the debtor) is recoverable by the bankruptcy Trustee UNLESS
you have one of the many defenses available. You should check with an
attorney if this should arise. You may also wish to take preventive
steps if you are accepting payments from a client who you think may be
going bankruptcy soon.
Q: How do I get the debtor to reaffirm my debt?A:
Debtors may choose to reaffirm certain pre-bankruptcy obligations. This
reaffirmation turns the debt into a post-bankruptcy obligation. This is
desirable for creditors, but almost never for debtors. Extreme care
must be exercised in seeking a debtor's reaffirmation as there are
increasing court and other legal requirements for doing so.
Q: How do I determine the deadline for filing a proof of claim?A:
Shortly after the bankruptcy filing, the court sends out a notice of
bankruptcy that includes information regarding the date, time and place
of the first meeting of creditors, the deadline for filing proofs of
claim, and deadline for filing objections to discharge.
Q: May a debtor add additional creditors after the case has been filed?A: Yes. This may be done at any time. A debtor may also amend to correct or add any other information contained in the papers.
Q: If I was not listed in the bankruptcy and didn't receive notice, can my debt still be discharged?A:
Generally, a debt that is not listed or scheduled on a bankruptcy
petition will not be discharged unless the creditor has notice or
actual knowledge of the case in order to timely file a proof of claim.
HOWEVER, if it is a no asset bankruptcy (meaning, no distribution would
be made), most courts hold that the debt will be discharged even if it
was not listed since there would be no distribution in any event. If
you have grounds for objecting to the debtor's discharge, that time
period may be extended if you received no notice of the bankruptcy.
Q: Should I attend the first meeting of creditors (341a Meeting)?A:
Generally speaking there is no great benefit to attending. Although,
this depends on what chapter was filed and what the circumstances of
the particular debtor is. Due to time constraints, questioning by
creditors at these meetings is very limited. If you wish to discover
information about the debtor, your better course is to seek court
approval to take the debtor's deposition (under Bankruptcy Rule 2004).
Q: If the debt is guaranteed by a third party, can I still pursue that party in collections during the debtor's bankruptcy?A:
Generally, yes. But, in a chapter 13 the automatic stay also protects
co-obligors on consumer debts. Under such circumstances, you would need
to seek court approval to proceed against the third party.
