What to do when you get a bankruptcy notice from the court:
Bankruptcy filings are expected to increase dramatically in 2013 as the eight year filing limit expires for 2005 bankruptcy filers. So what do you do if you get a notice from the court that someone who owes you money has filed bankruptcy? The answer depends on what type of bankruptcy they filed.
Chapter 7 – the primary purpose of a personal Chapter 7 bankruptcy is to extinguish the person’s responsibility to pay unsecured debt (primarily credit card debt, medical and other professional services bills, and personal loans). A person in Chapter 7 can keep their home, some vehicles, most household goods, and various other assets, as long as those assets don’t exceed a certain value, AND the person agrees to pay back any loans for which the assets are collateral (like mortgages and vehicle loans-also known as secured debt). Any assets which exceed the allowed amount are sold and the proceeds are paid to creditors.
Chapter 13 – sometimes known as a payment plan bankruptcy. Only individuals can file under Chapter 13. In Chapter 13, the person who owes money proposes a three to five year schedule (a Chapter 13 plan) to pay a certain monthly payment to their creditors. The amount of the monthly payment depends primarily on the person’s income. If a person has more than a certain amount of income, they are not allowed the benefits of Chapter 7 and must make partial or full payments to their creditors under a Chapter 13 court-approved payment plan.
What to do with Chapter 7 notices – In most Chapter 7 cases there will be no payment to creditors. This is because the assets owned by most bankruptcy filers are worth less than the value of assets they are allowed to keep by law, or their assets are collateral for a loan to a bank or credit union. In a Chapter 7 case, the notice you get from the court will say that you should not file a proof of claim (a request for payment) unless you receive another court notice to do so. You should do exactly that – wait until the court sends you another notice that the court-appointed investigator found some money that can be paid to creditors. Then, file a proof of claim promptly with the court.
What to do with Chapter 13 notices – In most Chapter 13 cases, there will be a payment to creditors, because the person who owes money will be making payments to the court. Accordingly, in a Chapter 13 case you should always file a proof of claim form with the court as soon as possible. The proof of claim form is available on the bankruptcy court’s website www.mnb.uscourts.gov.
The Meeting of Creditors – The court notice you receive will reference a “Meeting of Creditors.” Should you go to it? The purpose of the meeting of creditors is to give you a chance to ask the person who owes money questions. This is not the time to get into an argument with the person about why they haven’t paid you back, and the person in charge of the meeting will not allow that. If you have a lien on the person’s assets, you may want to attend the meeting to find out where your collateral is, whether it is insured, and what they intend to do with it. Beyond that, there is usually not a good reason to attend the meeting unless you are curious and want to observe.
Bankruptcy is a very complex area of the law, and comes up infrequently even for most lawyers. You should always contact an experienced bankruptcy lawyer for assistance before taking any action in a bankruptcy case or against someone who has filed bankruptcy.
By: Bob Kanuit
Published in the Duluthian Magazine, January 2013.
Bob Kanuit has been practicing bankruptcy law in Minnesota and Wisconsin since 1994. He is a former Chapter 7 Bankruptcy Trustee and former counsel to the Standing Chapter 13 Bankruptcy Trustee in Minnesota. He practices law with the Lender Support and Real Estate groups at Fryberger, Buchanan, Smith & Frederick P.A., in Duluth.