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Chapter 13 Creditors

 

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CREDITOR'S RESPONSE

TO CHAPTER 13 BANKRUPTCY


1.   WHAT STEPS SHOULD A CREDITOR TAKE WHEN HE RECEIVES OFFICIAL NOTICE THAT A DEBTOR OF HIS HAS FILED A CHAPTER 13 BANKRUPTCY?

The most important is to file a proof of claim.  All the money a Chapter 13 Trustee pays is based on proven claims not the debtor's schedules.

 

2. WHAT NEXT?

The court notice will contain a copy of the debtor's plan and a solicitation of a creditor's acceptance or rejection of the plan. The next step depends on whether or not a creditor is secured or unsecured. A careful reading of the plan will let creditors know exactly what to expect.

 

3. WHAT IF A CREDITOR IS UNSECURED?

Unsecured creditors' acceptances or rejections are ignored, so if you are in this category, your vote is inconsequential. A creditor can probably determine the percent payment he will receive under the plan, as the plan will specify the amount and duration of the payments to be made. The trustee will inquire of the debtor and his attorney at the 341 meeting to determine the percent paid if all claims are proven by possible unsecured creditors. Almost without fail, even in 100% pay plans, some creditors fail to prove their claim and are just out of luck! File a proof of claim.

 

4. DO CREDITORS RECEIVE INTEREST?

Unsecured claims do not. Secured claims receive the petition date balance, and receive interest called "discount" under most confirmable plans. There is room to challenge a debtor's proposed interest rate if it is not commercially reasonable.(1)  

 

5. WHAT IF A CREDITOR IS SECURED?

If the plan allows repossession, the creditor who is collateralized by the responsible item should proceed as in a Chapter 7.  A plan providing for repossession means the debtor's cooperation will be easily obtained.  If the plan calls for payment to a creditor outside the plan, and there is not a breach of the original security agreement (other than the mere filing of bankruptcy which by federal law is not allowed to be deemed a breach by itself), the creditor's claim is not even affected by the bankruptcy.  If the plan calls for payment to a creditor that modifies the payments under the original obligation, his vote becomes important. If the creditor votes acceptance or fails to vote -- which often happens when a creditor uses a Chapter 7 Proof of Claim form instead of a Chapter 13 Proof of Claim form -- the plan can be approved no matter what it does to the creditor. If a creditor rejects the plan, the only ways it can be approved are 1) if the plan preserves the creditor's lien rights and he gets paid the secured portion of the claim under the plan, or 2) the creditor is allowed to repossess his collateral.

 

6. SHOULD EITHER SECURED CREDITORS OR COUNSEL FOR SECURED CREDITORS ATTEND THE CONFIRMATION HEARING?

Again, these hearings are intricate procedurally, and to best benefit from attendance, a creditor should be accompanied by knowledgeable counsel. If it is not worth taking along an attorney, it is probably not worth attending. Secured creditors should certainly have the value of their collateral determined by stipulation with the debtor's counsel, agree as proposed in the plan or attend this hearing, as the court sets the allowed value of claims at or before confirmation.

 

7. WHAT HAPPENS AFTER THE PLAN IS CONFIRMED?

The debtor makes the payments to the trustee who disburses the funds according to the terms of the plan.

 

8. WHAT IF THE DEBTOR MISSES A PLAN PAYMENT?

One late payment of 36 is not generally a problem. Chronic nonpayment can be brought to the court's attention by the trustee or an interested creditor, and the court may dismiss the case or convert it to a Chapter 7.

 

9. WHAT WILL A CHAPTER 13 CONFIRMATION DO TO A CREDITOR'S PAYMENT SCHEDULE WITH THE DEBTOR?

Completely forget the old schedule. The trustee cannot disburse fairly until all creditors have had the opportunity to prove claims -- that generally means no disbursements for ninety days after the 341 meeting.  When the time for filing claims has run, there may be additional delays if some claims are improperly filed and require a hearing to determine their propriety. Once the first disbursement is made, disbursements are generally made quarterly or semiannually thereafter by the trustee depending on the amount of money involved and the practicality of writing checks to small creditors in the amounts called for under the plan. If a creditor has collateral that can go to waste under Chapter 13. 

 

Do you have a question about Chapter 13 creditor problems or any aspect of bankruptcy at all?

Click here to e-mail your question  to the firm QUESTION  Responses of general interest may be used to update Plain Talk. All Wyoming and Colorado inquiries will receive a reply.

 

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1. 1See 11 USC 1325(a)

 

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