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Timeline of Chapter 7 Bankruptcy Case

Profile ImageBy: Anne Smith, Attorney

Over the years, I’ve been asked by clients how long a bankruptcy case will last. As a former debtor’s attorney, and now as a creditor’s attorney, I am still asked this question. Below is a general summary of the timeline for a chapter 7 bankruptcy case – keep in mind that many factors can alter this timeline, and this should be viewed only as a guideline.

A Chapter 7 bankruptcy case begins once a Petition is filed with the Bankruptcy Court. The debtor’s petition includes Schedules listing assets, creditors, income, expenses, executory contracts, leases, and co-debtors. The Schedules are usually, but not always, filed at the same time as the Petition. Other supporting documents, such as the Declaration Regarding Payment Advices and Credit Counseling Certificate, along with the filing fee, are also typically filed together with the Petition.

Immediately: The automatic stay order is issued immediately upon filing. This stops all actions that affect the debtor, his/her income or assets of the bankruptcy estate. Garnishments on bank accounts and paychecks, and lawsuits or foreclosure actions are halted once creditors are notified of the bankruptcy filing. A Trustee will be assigned to the bankruptcy case.

Two weeks after filing: The Bankruptcy Clerk will mail creditors the Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines, which provides the date set for the meeting of creditors and other important deadlines. Many districts indicate whether a creditor should or should not file a Proof of Claim at that time.

Within 30 days of filing: Debtor must file a Statement of Intention, if not already filed with the petition, informing the court if he/she plans to keep or surrender any collateral property.

Approximately 4 weeks after filing: The Meeting of Creditors, often referred to as the 341 meeting, will be held. Creditors may attend and are permitted to ask questions of the debtor, usually about disposition of collateral, valuation or reaffirmation plans.

30 days after the 341 Meeting: Deadline for the Bankruptcy Trustee or creditors to object to any exemption claims. Debtor will need to surrender the property, reaffirm the debt, or redeem property for the allowed secured claim, as indicated in the debtor’s Statement of Intent. Anticipate additional pleadings, e.g. reaffirmation agreement, motion to redeem.

60 days after 341 Meeting: Creditors must object to discharge of debts that were obtained by false pretenses, a false representation, or actual fraud; debt from fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny; and debt for willful and malicious injury. This deadline applies to objections to discharge of: consumer debts owed to a single creditor of more than $500 for luxury goods or services obtained within 90 days before a Chapter 7 bankruptcy, or cash advances totaling $750 or more within 70 days prior. Creditors may also object to discharge of debts involving misconduct, including transfer, destruction or concealment of property; concealment, destruction, falsification or failure to keep financial records; making false statements; withholding information; failing to explain losses; failure to respond to material questions; or having received a discharge in a prior bankruptcy case filed within the last 6 years. In most jurisdictions, the deadline for objection to discharge will be clearly set out in the Notice deadlines issued by the clerk to creditors early in the case. However, if a specific date is not set for filing of the objection, then the deadline is sixty days after the first date set for the 341 meeting of creditors. An adversary proceeding is required to determine the non-dischargeability of a debt.

More than 60 days after 341 Meeting: Debtor’s discharge will be issued by the Bankruptcy Clerk. However, at this point in time, the discharge is not absolute or final. The trustee can ask that the discharge be set aside if the debtor does not turn over non-exempt property, if the debtor fails to perform other duties, or if there were other matters pending which would result in the denial of the discharge. Because the discharge is not completely final at this point, we often counsel our clients to wait until the case is closed before taking any action without relief from stay.

If assets are found available for liquidation to pay creditors, the Trustee will issue a notice for creditors to file Proofs of Claim and will provide a deadline to do so, if creditors wish to share in the payments from debtor’s bankruptcy case.

At some point around the six-month mark, a Discharge will be entered by the Court, and the case will be officially closed. If the Trustee is liquidating non-exempt assets, the bankruptcy case will remain open to allow the Trustee to distribute the funds to creditors and file a final report.

Caveat: Any number of reasons or events, or even local rules of the courts, may affect this timeline. Contact your legal counsel for further information.

Secured Creditors Must File Timely Proofs of Claims to be Paid: Seventh Circuit

Profile Imageby Monette CopeJunior Partner

The Seventh Circuit (1) just issued an opinion holding that if secured creditors wish to participate in Chapter 13 bankruptcy plan distributions, they must not only file a secured proof of claim, but also file it in a timely manner.(2) Up until now, it was widely held that the proof of claims deadline only applied to unsecured claims.(3)

This is especially important in the Northern District of Illinois because the practice has been that if a secured creditor was provided for in the plan with monthly payments from the Chapter 13 trustee, that creditor did not need to file a claim to get paid. Read more here.

The FDCPA takes a seat in the bankruptcy code, or does it?

Profile ImageBy Monette Cope, Attorney

The Eleventh Circuit Court of Appeals recently held that a creditor may be held liable for an FDCPA violation if it files a claim in a bankruptcy case on a debt that is barred by the statute of limitations. The Supreme Court refused to review it, so it now stands as the law in that Circuit. While this should give pause to any creditor who files claims in the Eleventh Circuit, the case is just as important for what it does not say as what it does.

In this case, a creditor purchased a consumer debt that had been charged off. The statute of limitations expired a few years after the purchase. The debtor then filed a Chapter 13 bankruptcy case, and the creditor filed a proof of claim even though the debt was time-barred. Rather than object to the claim under the Bankruptcy Rules, the debtor filed an adversary proceeding claiming that the filing of the claim violated the FDCPA. Both the bankruptcy and district courts dismissed the adversary proceeding, but the debtor appealed and the Eleventh Circuit overturned the lower courts.

Instead of analyzing the adversary and claim under the Bankruptcy Code and Rules, the court started with the assumption that the FDCPA is the governing statute. Non—bankruptcy courts review FDCPA claims on whether or not “a debt collector’s conduct is “deceptive,” “misleading,” “unconscionable,” or “unfair” under the statute” to a “least-sophisticated consumer”. These claims are commonly raised when a debt collector is threatening legal action or has filed a lawsuit against a debtor to collect a debt. Essentially, the Eleventh Circuit held that because attempting to collect or collecting on a time-barred debt in state court is an FDCPA violation, filing a proof of claim on such a debt in bankruptcy is also a violation.

While debtors in state court collection matters are defendants, debtors in bankruptcy file their cases against their debts. Debtors in state court collections are not usually represented by an attorney and so do not have counsel to protect them against FDCPA violations. However, debtors in bankruptcy are highly likely to have attorneys. Moreover, Chapter 13 trustees are charged with objecting to claims A debtor in a Chapter 13 bankruptcy is therefore, hardly a “least-sophisticate consumer” because of the debtor’s own counsel’s knowledge and the trustee’s duty to object to claims. Debtors in bankruptcy have more protections than debtors in state court.

Claims are allowed in bankruptcy unless objected to. Claims may be disallowed if they are unenforceable against the debtor as time-barred debts are. While the Bankruptcy Code provides a mechanism to object to time-barred claims, it does not impose fines or fees against a creditor who files them. The consequence is only that the claims are disallowed.

The Bankruptcy Rules require that consumer claims based on open-ended or revolving credit agreements attach a statement to the claim that includes the date of the last transaction on the account. Statutes of limitations are calculated in many states based on the date of the last transaction . As long as this is disclosed, there is no deception, and the claim is not misleading, unconscionable or unfair.

This writer is not advocating a regular practice of filing claims in bankruptcy that are time-barred, but the Bankruptcy Code and Rules provide safeguards to protect debtors if these claims are filed. As a result, the FDCPA appears as an interloper in the claims process in Crawford. Indeed, the Eleventh Circuit specifically stated that it was not ruling on whether the Bankruptcy Code preempts the FDCPA in the claims process because that argument was not raised in the briefs. Therefore, this case makes no ruling on whether the Bankruptcy Code and Rules should have been applied over the FDCPA in resolving the objection to the claim.

Not all Circuits follow this reasoning and the appearance of FDCPA claims in bankruptcy are not always welcome in every Circuit. This may be a developing area of the law; that is, to what extent, if any, does the FDCPA overlap or intrude on the claims process set by the Bankruptcy Code and Rules. The best practice in any event is to ensure that any consumer claims you file are within the statute of limitations as of the date that the bankruptcy case was filed.

Secured Creditors Must File Timely Proofs of Claims to be Paid: Seventh Circuit

Profile ImageBy Monette Cope, Attorney

The Seventh Circuit just issued an opinion holding that if secured creditors wish to participate in Chapter 13 bankruptcy plan distributions, they must not only file a secured proof of claim, but also file it in a timely manner. Up until now, it was widely held that the proof of claims deadline only applied to unsecured claims.

This is especially important in the Northern District of Illinois because the practice has been that if a secured creditor was provided for in the plan with monthly payments from the Chapter 13 trustee, that creditor did not need to file a claim to get paid.

Read more.

What are a Debtor’s Obligations to accomplish surrender of Personal Property under 11 U.S.C. 1325 (a)(5)(C)?

Profile ImageBy Casey Hicks, Attorney

The Bankruptcy Code does not provide specific instructions on how to accomplish the surrender of personal property. In some jurisdictions, a “surrender” can only occur when physical possession is tendered. In others, the debtor does not need to tender possession of the property or provide sufficient location information for repossession.

In some jurisdictions, proposing to surrender property but not actually making the property available for turnover to the secured creditor is not a surrender of property under section 1325(a)(5)(C). IRS v. White (In re White), 487 F.3d 199 203, 204 (4th Cir. 2007). The Court states, in the absence of actual turnover of possession the creditor can only collect the value of the property through judicial enforcement. Id at 206. Thus, the debtor’s proposal is not a “surrender” under the statute. By admitting the creditor could obtain the property with adversarial litigation, the debtors all but admit their proposed surrender would not result in the relinquishment of all of their legal rights in the property. Id at 206. Likewise, at issue in In re Robertson, was debtor’s intention to surrender a vehicle pursuant to section 1325(a)(5)C). In re Robertson, 72 B.R. 2, 4 (Bankr. D. Colo. 1985). The debtor stated his wife was in possession of the vehicle and it was the creditor’s duty to discover its whereabouts. The Court held that “surrender” meant the debtor had to provide the secured creditor with possession of the vehicle. Id.

Other courts have found the debtor does not need to deliver the vehicle to accomplish a surrender. See In re Gabor, 155 B.R. 391 (Bankr. N.D. W. Va. 1993). In fact, a debtor may be able to surrender a vehicle without having knowledge of its whereabouts. See In re Alexander, 225 B.R. 665, 667 (Bankr. E.D. Ark. 1998). Debtor’s husband, whose whereabouts were unknown, was purportedly in possession of the vehicle. The court stated, the fact that debtor cannot physically drive the vehicle to creditor’s place of business, through no fault of her own, does not prohibit surrender. Id. The Court added, evidence of bad faith or fraud on the part of the debtor may lead to a different result. Id.

Despite the courts differing opinions on what constitutes a “surrender” of property under 11 U.S.C. 1325(a)(5)(C), there are penalties creditors can pursue if a debtor fails to turn over collateral. Pursuant to 11 U.S.C. 727(a)(2), the transfer, removal, destruction mutilation or concealment of property of the estate with the intent to hinder, delay or defraud a creditor or an officer of the estate is grounds for a denial of discharge. Additionally, pursuant to 11 U.S.C. 1307(c)(6), a creditor may file a motion to dismiss if the debtor fails to surrender the property in accordance with the terms of a confirmed Chapter 13 plan. Further, the debtor’s actions might also be criminal. The U.S. Code contains a number of bankruptcy related crimes including knowing and fraudulent concealment of property from creditors. See 18 U.S.C. § 152, et seq. Many states also have laws that criminalize concealing property with the intent to defraud creditors. See 720 ILCS 5/17-27(a); Wis. Stat. § 943.84; Ind. Code § 35-43-5-4(8).