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Nyx’s Guide to Lawsuits and Bankruptcy

Fri, 17 May 2024 11:21:38 GMT

Okay, so I may just look like a pretty face to you, but trustees can be just like me; hiding and watching and looking for the opportunity to pounce. While I prefer to pounce on bugs, mice and birds, the trustee’s favorite prey is dimes, quarters and dollars and the bigger the prey, the better…for them. I’m not about getting into a brawl with a bear but, if you are a bear, don’t mess around with me and find out. So, I wrote this guide to hopefully answer questions that you might have about lawsuits and bankruptcy.

IN A WRECK AND NEED A CHECK? We’ve all heard the commercials but, realistically, if you bring a lawsuit or have the right to bring one against someone for a personal injury case, that's considered an asset during your bankruptcy case. That is true for ALL LAWSUITS. Just like many other assets, judgments are not protected by a bankruptcy exemption . Therefore, any award recovered can be used to pay off your creditors as part of your bankruptcy case. If there is money left over after everyone has been paid off, though, you’ll get a refund from the trustee.

Your right to file a lawsuit against someone, sometimes called a “cause of action” is an asset. That’s true even though there aren’t any guarantees that you’ll receive money from the case. And because it’s an asset, it’s something you need to disclose to the bankruptcy court.

How To Disclose Your Lawsuit to the Bankruptcy Court

Tell Jeff about the potential lawsuit and he will disclose the suit (or potential cause of action) on your Schedules and in your Statement of Financial Affairs. If you’ve already received money from your lawsuit — such as winning at trial or agreeing to a settlement — then things are a little different. In this situation, the funds themselves are the asset. Talk to Jeff to discuss whether there is an exemption that would cover these proceeds.

Why It’s Important To Disclose This Asset

It’s important to disclose your interest in a lawsuit or cause of action. Failure to do so can be serious. If you don’t list this asset on your bankruptcy forms, the court could dismiss your case without discharging your debts and it just really creates a feeding frenzy with the trustees and as, ominous as I look, a little black cat is no match for a trustee. They are like the apex of apex predators…think Orca “playing” with a dolphin. Okay, now that I think of that, I do that with my prey, too, and it’s pretty fun.

Not that it is super common but, if you tell the bankruptcy court that you don’t have a claim against someone else, this COULD be used against you in the other lawsuit. You may also want to tell the attorney that is handling the lawsuit that you are considering filing for bankruptcy. If you intentionally exclude your potential cause of action on your bankruptcy schedules, the defendant in the other lawsuit can argue that you shouldn’t be allowed to pursue your lawsuit against them. In other words, you can't say one thing to one court and the opposite to another court.

Lawsuits Under Chapter 7

In Chapter 7 cases, your creditors are entitled to certain assets that exist when you file bankruptcy. Except for limited circumstances dealing with inheritances, you can keep any assets or property that you receive or become entitled to receive after you file bankruptcy. This is part of what getting a fresh start is about. If you win the lottery, for example, make sure to keep proof that you bought the winning ticket AFTER you filed for bankruptcy protection.

This means if you get in an accident after your Chapter 7 bankruptcy has been filed, you can keep all of the money from the resulting lawsuit or settlement. It doesn’t mean that simply waiting to file your lawsuit allows you to keep this asset out of your bankruptcy estate. What the trustee and the court consider is the date you obtain the right to sue (such as the day of the accident), not the date you file your lawsuit…and some trustees have nothing better to do than watch for cases popping up with your name on it after your case is over.

Things get a little more complicated if your lawsuit isn’t due to an accident. This is because it’s easy to miss the fact that you have the right to file a lawsuit. When in doubt, tell Jeff. You don’t want to be that dolphin.

Lawsuits Under Chapter 13

In Chapter 13 bankruptcy, certain "after-acquired property" gets pulled into the bankruptcy estate. After-acquired property could be money, a potential lawsuit, or personal items that you receive after you file Chapter 13 but before you complete your repayment plan and get a discharge. Some Chapter 13 repayment plans take up to five years to complete. Because of this, it’s not uncommon for Chapter 13 filers to experience a change in their financial situation while their bankruptcy case is in process.

So if you have an accident after you file bankruptcy but during your repayment plan, the money you’re entitled to receive may need to be turned over to the bankruptcy trustee. If this happens, it becomes important that you make sure your medical providers have their liens in place. If the liens aren’t created, you could potentially lose any money you get from your lawsuit but still have to pay back the unpaid medical bills that weren’t discharged during the bankruptcy process.

The Homestead Exemption Is Changing In Arizona – Good News Or Not!?

Thu, 21 Mar 2024 08:07:50 GMT

Among the bankruptcy attorney community many of us are discussing Arizona House Bill 2617, which amends the Arizona Homestead Statute, and related statutes, effective January 1, 2022. The short take on the bill is that the bill is not primarily anti-consumer, and has significant redeeming qualities that may benefit a lot of people but, as usual, it’s not all good.

What Changed?

First , the bill clarifies a question regarding the 2018 statutory amendment increasing the effective period of a judgment. I’m not a fan of that amendment as it was clearly anti-consumer. I just don’t understand why they basically made judgments seemingly eternal if you continue to renew them. A.R.S. § 12-1551 is amended to state expressly (a) that the 10-year renewal period of current law applies to (i) judgments entered on or after August 3, 2013, and (ii) judgments entered on or before August 2, 2013 and renewed under the prior 5-year statute on or before prior to August 2, 2018, and (b) judgments entered on or before August 2, 2013 and not timely renewed on or before August 2, 2018 are not revived.

Second , the bill increases the homestead exemption from $150,000.00 to $250,000.00. WOO HOO!!! Given the recent skyrocketing in the housing market values, the increase is long overdue and they should probably amend it again so that the exemption at least increases annually with the cost of living. The prior $150,000.00 exemption was an absolute joke and completely insufficient to enable people to use the proceeds of a forced sale to acquire a new homestead. The change is beneficial to debtors and contrary to the interests of creditors...for once. This has led to some people to start bankruptcy planning; since the state law exemptions available under 11 U.S.C. § 522(b)(3)(A) are those that are "applicable on the date of the filing of the petition." The higher homestead exemption has created quite the incentive to prospective bankruptcy filers to delay filing until 2022.

Finally , A.R.S. § 33-964 will be amended to provide that a recorded judgment is a lien against all property owned by judgment debtor in the county where recorded, including homestead property!

Therefore, if you get sued and a civil judgment is granted against you, this judgment could become a lien on your real property, homestead or not, provided that the property is in the same county that the lien is recorded. Furthermore, this judgment can travel through time and attach to property that you acquire AFTER the judgment! Lastly, this subsection applies retroactively to all judgments without regard to when the judgment was recorded. So, if you have a judgment against you that was recorded in 2020 and you bought a house in 2021, that judgment will now attach to your house! Super cool, huh? I’m pretty sure if voters were asked if they wanted this, 99% of us would say “HELL NO!!!”

A.R.S. § 33-964B (as amended eff. 1/1/2022)

This is a significant change from the anomalous situation presented by prior law, under which (a) a recorded judgment was not a "lien" against homestead property, yet (b) the judgment creditor nevertheless could cause the sheriff to levy against and sell the property. Thus, under existing law, a judgment lien does not attach to a homestead property. Nevertheless, the judgment creditor has the right to cause a writ of execution to be issued, and to sell the property, so long as the judgment debtor's interest in the property is greater than "the sum of the judgment debtor's homestead plus the amount of any consensual liens on the property having priority to the judgment." A.R.S. § 33-1105. This provision remains unchanged under the Amendments. The intent of the change to § 33-96433-964, in this context, is to provide clarity as to the competing rights and obligations of the parties regarding homestead property. Whether it accomplishes this goal is another matter entirely.

So, What Can You Expect?

If you want to refinance and get cash out of your house: If you receive cash proceeds from refinancing the homestead property that is subject to a judgment lien, the judgment creditor must be paid in full from those proceeds before the judgment debtor or other person receives any proceeds.

If you want to sell the house then things get complicated and those pesky title agents will start to earn their money.

1. If the anticipated payment to the judgment debtor is less than 80% of the homestead exemption (i.e., $200,000.00 under the amended law), the title insurer is authorized to record a partial release without notice to the judgment creditor.

2. If the anticipated payment to the judgment debtor will exceed $200,000 (80% of the exemption), the lien is extinguished as to the homestead property, subject to compliance with requirements for notice and opportunity to object on the part of the judgment creditor. Specifically, in such circumstances:

The title insurer must mail a notice to the judgment creditor (20 days before the sale is final) by certified mailing, informing the judgment creditor of the position of the title insurer (not the judgment debtor) that the judgment creditor's lien will be extinguished by the voluntary sale (A.R.S. § 33-364(B) as amended eff. 1/1/2022); and
If the judgment creditor has "good cause to believe that the judgment lien should not be extinguished," the judgment creditor has 20 days after the date of the title insurer's notice to submit an objection. (Id.)

The statutes provide no sense of clarity, and litigation will likely be the only mechanism to obtain bright line rules, as to multiple issues. I could elaborate but, since this doesn’t pertain to bankruptcy law, I will try not to bore you further.

I’m a bankruptcy attorney that practices in Arizona. I’ve had clients all over the state in cities like Chandler, Mesa, Tempe, Scottsdale, Apache Junction, Queen Creek, Phoenix, Peoria, Litchfield Park, Ahwatukee, Gilbert, Florence, Sedona, Lake Havasu, Peoria, Glendale, Fountain Hills, Avondale, Goodyear, and Cave Creek. While most of my clients reside in Maricopa and Pinal County, I can assist you with a Chapter 7 or Chapter 13 bankruptcy anywhere in the state. If you have questions, please don’t hesitate to call or email me.

Income Tax Debt and the IRS

Thu, 21 Mar 2024 08:07:50 GMT

They say that there are two things that you can’t avoid in life: DEATH and TAXES. While we haven’t found a way to avoid death yet, the personal income tax debt can be effectively managed and often discharged in bankruptcy. If your bank account has been frozen, your wages are being garnished, you have entered into a payment arrangement with the tax man or even just received a notice from your state or the IRS, then I can have your bank account and wages released. In most cases, I can file for protection the same day you call me.

It is illegal for the Internal Revenue Service to attempt tax levies, wage garnishment, bank account garnishment or any kind of seizure of your property after you file for chapter 13 or chapter 7 bankruptcy protection. The same protections hold true if you owe the Arizona Department of Revenue or other state tax agencies, and if you owe county or city taxes as well.

The law on which tax debts are forgiven and which you will have to pay are complex and there are many exceptions to rules: but in general, if you filed your tax returns at least two years ago and the tax debt is for years that are over three years in the past, then that tax debt may be discharged in bankruptcy. Interest and penalties often stop when you file chapter 13 or chapter 7; and in many cases, penalties will be waived or reduced.

Should I File Personal Tax Returns Before Submitting Bankruptcy?

In short, YES!!! There is simply no reason to delay in filing your taxes until after you file for bankruptcy. After the decision is reached to file an Arizona bankruptcy petition, Debtors must provide copies of their most recent year’s tax returns unless you are not required to file. Filing tax returns before submitting a bankruptcy petition is always advised for the following reasons:

IRS often assesses significant penalties and interest when tax returns are not filed timely. Penalties and interest resulting from failure to file might not be discharged in the bankruptcy case. Further, if the IRS files a tax lien, you’re your property is then at risk. They even place liens on personal property!!!
Personal tax owed does not go away after the individual files a bankruptcy petition. The tax bill continues to grow, even prior to the addition of penalties and interest. If the Arizona resident files a Chapter 7 case, taxes owed can affect decisions made by the court. If the individual files a Chapter 13 case with the court, taxes owed almost certainly affect the outcome. Specifically for Chapter 13 cases, taxes are considered priority debt and must be paid back in a Chapter 13 plan. If you haven’t filed taxes for a few years, then the clock has not started ticking on those deadlines and you’ll have to pay whatever you owe in your Chapter 13 Plan. Also, if you’re getting money back, the trustee will want that money.
If your disposable income is insufficient to pay taxes and priority debts, the non-priority portion of the tax claim will be discharged. The claimant's last tax return must be filed with the Trustee. In Chapter 13 plans, the trustees often ask for just the most recent tax return. If you haven’t filed them, the IRS or State of Arizona will file a claim indicating that they have not received returns for those years and you’ll have to file them ASAP or sign an affidavit indicating that you were not required to file taxes for the years that you did not. If you have not filed all of your required complete tax returns, your case may be dismissed.
When you submit tax returns and are due a tax refund, these monies may belong to the Chapter 7/Chapter 13 estates. The refund may be collected for creditors. If you file the return and spend the money before filing bankruptcy, the trustee will have no claim to that money.

Although personal tax owed is generally considered "not dischargeable" in bankruptcy, in some cases tax debt from prior years may be discharged. In order for an unsecured income tax debt (including penalties and interest) to be discharged in bankruptcy, the claimant must meet requirements outlined in sections 523 (a)(8) and 508 (a)(8) of the bankruptcy code.

Prior Tax Returns

According to bankruptcy law, in order for taxes to be dischargeable, they must have become due more than three years prior to the filing of a bankruptcy petition. For instance, if the individual owes income taxes for 2015, these would become payable to IRS on April 15, 2016, or more than three years ago. If the taxes were filed before the filing deadline, the requirement is met. In this example, the tax return for 2015 must have been filed with IRS at least two years prior to the filing of a bankruptcy petition. If the taxes were not filed until April 15, 2017, the taxes, in this case, could still be considered dischargeable. However, if the petitioner did not file the 2015 return until April 15, 2020, he or she would need to wait another two years (April 15, 2022) in order to file a bankruptcy petition and have those taxes discharged.

The law also states that tax returns must not be fraudulent, which is not the same as an inaccurate tax return. Human error or mistakes may prompt the individual to refile or amend a tax return.

Taxes must be assessed a minimum of 240 days prior to the filing of the bankruptcy case. In most instances, taxes are assessed at the time the individual files the return. However certain circumstances like a later IRS evaluation, audit, amendments, and corrections may create a later assessment of the tax return years after the taxpayer submits the return.

Other Things To Consider

The bankruptcy code states that if you cannot afford to pay his or her taxes on time, it is very important to file the return when it is due. The accuracy of the tax return is also essential. You should never estimate tax return data. The discharge of significant taxes owed requires the assistance of a qualified bankruptcy attorney. When you file your bankruptcy petition, correct inclusion of the tax debt on your schedules may help you discharge a large amount of tax debt.

Conclusion

Now all you have to worry about is DEATH. If you have tax problems, I have answers. I’m a bankruptcy attorney that practices in Arizona. I’ve had clients all over the state in cities like Chandler, Mesa, Tempe, Scottsdale, Apache Junction, Queen Creek, Phoenix, Peoria, Litchfield Park, Ahwatukee, Gilbert, Florence, Sedona, Lake Havasu, Peoria, Glendale, Fountain Hills, Avondale, Goodyear, and Cave Creek. While most of my clients reside in Maricopa and Pinal County, I can assist you with a Chapter 7 or Chapter 13 bankruptcy anywhere in the state. If you have questions, please don’t hesitate to call or email me.

I Can’t Afford Bankruptcy

Thu, 21 Mar 2024 08:07:50 GMT

I’m on the phone discussing a client’s financial situation and it is not good. The client says, “It looks like I can’t afford bankruptcy." Sometimes, that is exactly correct.

To be sure, bankruptcy can help most people but sometimes there are situations or people with particular financial goals in mind for whom bankruptcy may not work. It can be a very discouraging realization. So, what might these situations be?

Before we get to those, it might be helpful to brush up on the differences between a Chapter 7 and a Chapter 13 bankruptcy filing—the two most often filed by consumer debtors.

In a chapter 7 filing, the debtor basically gives all of his or her non-exempt assets to the chapter 7 trustee. In most cases, there are no non-exempt assets. If there are, the trustee liquidates those assets and distributes the money to the creditors. The balance of the debt is discharged. Alternatively, the debtor can enter into an arrangement with the trustee to buy those non-exempt assets back. Typically, non-exempt assets would be having too much money in the bank, a tax refund, too much equity in a car or truck or something along those lines. A chapter 7 filing works well if debtor passes the “means test" and usually has a lot of unsecured debt to be discharged. If there are secured debts (like a car, house or other property), the debtor is either able to continue to pay those debts or is surrendering the collateral and discharging the debt. However, some debts entitled to priority and may not be discharged through a chapter 7 filing.

For a chapter 13 filing, there are a couple of typical situations for which a chapter 13 filing is more likely to meet the debtor’s goals. If the debtor is behind on his house payment or car payment and does not have enough to pay the missed payments, then a chapter 13 allows the debtor to pay back the late payments through the plan. If the debtor owes taxes or back support, a chapter 13 filing may be a good way to deal with those debts by paying the debts in full over the life of a chapter 13 plan.

Also, for a chapter 13 filing, if the debtor has assets over and above what may be exempt, the debtor will be allowed to keep those assets if the debtor can pay for the value of those assets over the life of the plan.

So now–back to our prospective client who “can’t afford bankruptcy." What might this debtor’s situation be?

Asset Rich, Cash Poor

This situation occurs where the debtor has an asset that he wishes to keep but which would be sold in a chapter 7 case. A paid off car worth more than the exemption amount is typical. For example, if the debtor’s car has $10,000.00 in non-exempt value, the debtor could expect to have to pay the extra $4,000.00 plus the trustee’s fees and any remaining bankruptcy attorney fees over the life of a five-year plan. The chapter 13 plan will have to account for this asset in determining the Chapter 13 plan payment. If the debtor cannot afford this extra money, then the plan will not be allowed to go forward. Either the debtor can surrender the vehicle or may have to reconsider a bankruptcy filing. I’m sure that we can work something out, though.

Too Much Priority Debt…Taxes or Support

Often the debtor will owe the government or an ex-spouse money, too. This debt will not be forgiven in a Chapter 7. If you owe back child support in the amount of $15,000.00, then this priority debt must be paid in full over the life of a chapter 13 plan or it would remain after a Chapter 7. In calculating the Chapter 13 plan payments, approximately $250.00 will have to be paid into the plan just for the back support claim (add up to 10% more for the trustee's processing fee). If the debtor cannot afford this payment for this claim, the plan will not be allowed to go forward. In this instance, the debtor will have to make some adjustments as to his financial goals or work something out with the ex-spouse outside of bankruptcy. I’ve dealt with these problems before, too, and worked them out.

Trying To Keep More Secured Debt Than He Can Afford

You may be trying to keep too much “stuff" that is subject to a creditor’s lien. For example, if you are behind on your house payment by $10,000.00 and your house payment is $1,000.00, you are going to have to have enough income to make that $1,000.00 house payment and enough extra to catch up the $10,000.00 on your mortgage. If you’re behind on your mortgage, also keep in mind that you will have to make your mortgage payments to the trustee instead of the mortgage company and the trustee adds his lovely 10% fee to that.

Also, if you are trying to “cram-down" a car or two, you have to have enough income to pay for the vehicles through the plan. If you really can’t afford to pay enough into the plan to pay for the vehicles at the reduced, “cram-down" value, then some alternative strategies are going to need to be considered such as, perhaps, giving up a vehicle and obtaining a less expensive one. I wrote this in 2021, too, so there aren’t many people cramming down car loans in this crazy economy.

Not All Is Lost!

Bankruptcy may still be an option but you may have to re-evaluate what is important to him or her. For example, if the house is important, you could consider surrendering a car and obtaining a less expensive one. If the cars are very, very important, then a second job may be in order to earn enough money to pay for them.

Behind in Your Mortgage in Arizona? Chapter 13 Can Help

Thu, 21 Mar 2024 08:07:50 GMT

For a lot of people, Covid-19 or other issues may have caused you to fall behind in your mortgage payments. Perhaps the mortgage company allowed you to miss a few payments and now they are asking you to catch up and they’ve demanded a large catch-up payment. For whatever reason you may have, a Chapter 13 bankruptcy may be able to allow you to catch up on those missed payments and spread them out over a period of 36 to 60 months. Losing your house in 2021 would be devastating. First, there is the cost of relocation. Then, you’ll be shocked at the cost of rental in 2021. Whether you’re in Chandler, Gilbert, Scottsdale, Phoenix, Mesa, Tempe, Peoria, Goodyear, Litchfield Park, or anywhere else in Maricopa County or beyond, the rents have skyrocketed as much as the costs of houses. If you’re behind and need a Chapter 13 to help you keep your house, here is how that works:

Upon filing a Chapter 13, you would stop paying the mortgage directly to your mortgage company or mortgage servicer and, instead, you would make a payment to the Chapter 13 Trustee, instead. The first payment is due 30 days after you file your case. The mortgage company will then file a claim in your bankruptcy case indicating what the current payment is and how much you are behind on your mortgage. The amount that you are behind is called “arrears.” I often hear people call it “in the rears,” though, and it makes me secretly snicker. They may also file what is called a “Notice of Post-Petition Mortgage Costs and Fees” and THIS is really where they get you in the rears because these expenses are an absolute joke. Sadly, we are stuck with these stupid fees and they are usually $600-1,200 for reviewing the Plan, filing a claim and basically picking their nose.

Once these are filed, this is how the claims are classified and paid. First, the plan will propose that the mortgage is paid through the trustee and he adds his 10% trustee fee. Therefore, a $2,000 mortgage payment would become $2,200. The arrears and the post-petition fees are classified as secured claims and get paid without interest over the duration of your plan. If you have $6,000 in arrears and post-petition fees, that adds about $100 to your plan payment.

Obviously there are a lot of other factors that go into determining what your plan payment will be like your disposable income and other claims that are required to be paid (taxes, car payments, attorney fees) but this is a simplified explanation of how a Chapter 13 can help you save your house from foreclosure.

Definitions:

Mortgage Arrears

This portion includes any amount that you are behind in your mortgage up until the date of filing your case. Please note that, while many people think that they have until the 10th or 15th of the month to pay the mortgage without being late, the due date for every mortgage that I have seen is actually the first of the month. The end of the grace period is not relevant. So, if you haven’t paid the mortgage and the check hasn’t cleared by the day your case has been filed, that month’s payment will be added to the arrearage. Not a big problem, though.

Conduit Payment

If you were behind on your mortgage payment, the bankruptcy court in Arizona require that future mortgage payments be paid through the Trustee. This is a conduit payment. This is the portion of the claim for the regular post-petition mortgage payments commencing as outlined in your original, amended or modified Chapter 13 Plan. This claim will be paid by the Trustee immediately to ensure that there is no delay in the payment of your regular post-petition monthly mortgage payment. Therefore, it is extremely important that you are current on your plan payments to ensure that there is adequate money in your trust account so that the Trustee can send the mortgage company or servicer your monthly mortgage payment. If you fall behind in your plan payment, there may not be enough money to make the mortgage payment. Also, the trustee only sends out checks once a month, so if your funds aren’t in the trust account when he is sending out checks, the mortgage will not get paid until there is enough money in the account.

Trust Account

Until your case is confirmed, the money you send the trustee goes into a trust account. While the trustee will take his fees from your payments, and will pay the mortgage, most of the remaining funds will remain in the account until the case is confirmed and the judge approves disbursing all of the funds in your trust account.

Trustee

The Trustee is the employee of the court that is in charge of overseeing your case. He receives the funds from you and deposits them into your trust account. He will pay the mortgage if you have a conduit case. He will also pay secured debts, your attorney, the pre-petition taxes that are not dischargeable. You can even check to see the status of all of the claims online at www.ndc.org but I wouldn’t recommend calling or emailing the trustee. They have a TON of cases and they are represent the creditors more than they represent you.

Is Bankruptcy the Solution to Your Financial Struggles?

Thu, 21 Mar 2024 08:07:50 GMT

Sit Down With a Bankruptcy Lawyer in Chandler, AZ to Discuss Your Options

You've reached the point where you're wondering, "Should I just file for bankruptcy?" The answer isn't always simple, and it will depend on your specific situation. Find out for sure by visiting Jeff Biddle Law. We've handled countless bankruptcy cases in the Chandler, AZ area.

This is an important decision. Don't make it alone. Discuss your situation with a bankruptcy lawyer today.

Bankruptcy Could Be the Doorway to Financial Freedom

If you owe more debt than you can repay or if you need more time to repay it, bankruptcy could be the answer you're looking for. Talk to a bankruptcy lawyer if you want to:

Save your home from foreclosure
Discharge unsecured debts
Stop a lawsuit filed against you

A bankruptcy lawyer from Jeff Biddle Law can examine your situation and offer sound legal advice. Call 480-525-9705 right away to learn more about our bankruptcy law services available in Chandler, Arizona.

Should You File for Chapter 7 or Chapter 13 Bankruptcy?

Thu, 21 Mar 2024 08:07:50 GMT

A Bankruptcy Lawyer from Chandler, AZ Can Help You Make Strategic Decisions

If you've decided to file for bankruptcy, you have one more major decision to make: should you file for Chapter 7 or Chapter 13?

Jeff Biddle Law handles both types of bankruptcy cases in Chandler, Arizona, and the nearby area. When you sit down with our bankruptcy lawyer, you'll be able to explore all your options. Dial 480-525-9705 now to schedule a consultation for bankruptcy law services.

Which One is Right for You?

Every person's financial situation is different, so there's no fast way to tell whether you should file for Chapter 7 or Chapter 13 bankruptcy. Your bankruptcy lawyer will have you take a means test, which will show us what type of bankruptcy will serve you best based on your income, property, and debts.

We'll look at:

What type of debts you have: Secured and unsecured debt is handled differently under bankruptcy law.
Whether your debts can be discharged: Some debts, such as student loans and alimony, cannot be discharged.
How you could pay back your debt: Chapter 13 bankruptcy lets us restructure your debt so you can pay some of it back.

Make sure you make the right decision. Work with a reputable bankruptcy lawyer in Chandler, AZ.

Adding Creditors To Your Bankruptcy After Filing

Thu, 21 Mar 2024 07:40:55 GMT

Oh no! You forgot about a creditor and didn’t list them on your bankruptcy schedules. Or maybe you didn’t even know about them and just received a notice from them in the mail. Can you add an omitted creditor after the fact?

In the fateful words of a careful lawyer, it depends .

It really depends on when the amendment is made and what chapter you’ve filed. Also, the effect of adding a creditor varies between the two chapters and the timing.

Let’s walk through the legal jungle of adding a creditor to your bankruptcy papers.

Amendment While Case Is Open

Sure, anytime the case is open in the bankruptcy court’s clerks office, you can file an amendment to your schedules. You can even have received a discharge in your case.

Adding the creditor’s name to the schedules gets the new name added to the master mailing list which parties and the court use to give interested parties notice about the case.

Just because the filing is accepted doesn’t mean anything about the effect of the filing, though. It is absolutely true that the sooner an omitted creditor is added, the better for the debtor.

There is also a fee for amending the lists of creditors. Currently, the fee the court charges to add a creditor is $32. (as of 12/1/2020).

Does Addition Give Timely Notice?

Just because you have added a creditor to the mailing list doesn’t necessary get them actual and timely notice of the case.

The clerk’s office sends out the notice of the bankruptcy filing at the beginning of the case. The notice of the case sets out the deadlines for creditor action in the case:

date of the first meeting of creditors
last day to object to discharge or dischargeability
bar date for filing proofs of claim

Unless the added creditor gets actual notice, just getting them in the bankruptcy papers may not be enough to bind that creditor to the deadlines in the case.

In my office, then, once I have amended the schedules, I mail a copy of the notice of bankruptcy filing for the case to the added creditor. If the meeting of creditors has been scheduled, I also send them that notice, too. It’s called a 341 Notice. In a Chapter 13 case, I will also send them a copy of the Chapter 13 Plan which includes the deadlines to object and file a claim. Once all of those have been mailed, I file a certificate of service showing that we gave the new creditor actual notice of those filings.

That way, there is no doubt that the creditor got notice.

When Important Deadlines Have Already Passed

This is when the effect of adding a creditor gets dicey because there are deadlines for the creditors to act in the bankruptcy case and, if they have passed, there may be consequences.

If the added creditor misses the first meeting of creditors, there are generally no adverse consequences. Very few creditors appear for the meeting of creditors anyway. Actually, I can probably count the number of times a creditor has appeared in one of my cases on two hands. If I include the creditors that I’ve seen in all of the cases that I’ve seen while appearing (the cases where I’m not the attorney), then I would have to use my toes, too.

It is a different story if the added creditor doesn’t get notice in time to challenge the discharge of that creditor’s debt. If there will be a distribution to creditors in the case, a debt not listed often survives discharge.

Further if the added creditor has a claim that may be non-dischargeable, the window for bringing an adversary to contest discharge remains open. I don’t think I have ever experienced this in any of my cases, though, so it’s not something I would lose sleep over.

If the missed deadline is the deadline to file a proof of claim, often a late filed claim will be allowed on the grounds that the creditor didn’t get notice.

Chapter 13 Is Far More Strict

While the law makes varying accommodations for an omitted creditor in Chapter 7, the approach to the omitted creditor in Chapter 13 is not as forgiving.

Almost all courts hold that a creditor who doesn’t get notice of the filing of a Chapter 13 case in time to object to confirmation is not bound by the discharge. So, skipping a creditor in Chapter 13 stands to hurt the debtor’s fresh start by allowing the claim to survive.

Takeaway

It’s worth a lot to get everyone affected by your bankruptcy case actual and timely notice of the case for the broadest possible discharge.