Mid-Week Bankruptcy Case Review – Issue 5

Issue 05 – December 7, 2010

RE: DEBTOR WANTS TO KEEP A CREDIT CARD FOR EMERGENCY

When Donny Debtor came into the office to review his bankruptcy petition before filing, we asked him if he had any other credit cards that were not listed on Schedule F.  He said he had a JC Penny and Macy card but wanted to keep them in case of an emergency.

This is a typical situation that is played out in law firms thousands of times per day. In fact, it happens so frequently that debts are often left out of petitions; thus creating major problems. Therefore, if you learn anything from this article, learn to always ask debtors these questions before filing the bankruptcy petition:

1.  Do you owe any debts other than the debts you have provided to me?
2.  Are there any credit cards that you are holding back for an emergency?
3.  Are you aware that if you owe any other debts not listed on the petition that it could delay or even change your entire petition to the point that additional attorney fees may need to be paid?
4.  Are you aware that not including all your debts constitutes fraud because you are signing your name to the Declaration Concerning Debtors Schedules?

If the debtor answers Question 1 and 2 with a definite NO and Question 3 and 4 with a definite YES, in all likelihood they are probably being truthful.  It is extremely important for the debtor to understand that:

in a Chapter 7 …

Debts not listed in a Chapter 7 will probably not get discharged, often because the creditor was never notified so they could file a Proof of Claim.  This means that the debtor will be responsible for paying these omitted debts on their own as well as having them appear on their credit report in a negative manner.  In fact, omitting the debt could actually cost the debtor more money in paying higher fees for future credit, simply because the debt was omitted from the bankruptcy petition and never removed from the credit report.

in a Chapter 13 …

Debts not listed in a Chapter 13 will also not be paid and creditors not included will most likely file an Objection to the Chapter 13 Plan.  In addition, the debtors are paying all of their disposable income to the Plan payment and any extra debts would cause you to recalculate the Plan. However, if the Plan is already confirmed, and the omitted creditor wants to object to the Plan, an adversary proceeding may occur which will require litigation; resulting in additional attorney fees for the debtor.

Can you see why it is easier to simply ask the four questions I provided above in the initial intake, rather than risk all the drama that can happen if you do not?

SUMMARY

Depending on the type of debt, most creditors will close an account as soon as they receive notice of the bankruptcy filing.  In fact, since most creditors subscribe to the service provided by all three credit bureaus (Equifax, Experian and TransUnion); even if they are not listed on the bankruptcy petition to be notified, they may still find out about the filing anyway and close the debtors account immediately.

In the thousands of petitions I have processed throughout my career I have found that creditors on Schedule F immediately close the account of the debtor once they are notified of the bankruptcy filing.  Why?  Because an unsecure, non-priority claim is at the lowest end of the payment scale.  Even if the creditor is paid in a Chapter 13, they normally wait months or years for their first payment and it is often much less than the original amount they were owed.  (This is precisely why some creditors do not file a Proof of Claim. It is not worth the hassle.)

HOW ABOUT A REAFFIRMATION AGREEMENT?

Creditors who are listed on Schedule F cannot enforce a Reaffirmation Agreement. In order for a Reaffirmation Agreement to work, the debtors need to possess something the creditor can take if they are not paid the money owed to them.  In the situation of an unsecured Schedule F debt, the debtor is not possessing anything the creditor can repossess.  Therefore, even if the debtor signed a Reaffirmation Agreement with a Schedule F creditor, if the debtor does not honor their side of the contract and make the payments, the creditor has nothing to repossess and still loses.

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Disclaimer: This article is written for training purposes only and should not be considered legal advice. The author is not an attorney and has never attended law school. The information in this article is written from the 30+ years of knowledge working as a paralegal in the legal industry.

REFERENCE LINKS

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http://www.youtube.com/user/msvictoriaring

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http://www.bankruptcylinks.info/about/free-stuff
and http://www.bankruptcylinks.info/about/free-supplies

Enroll in the Chapter 7 or Chapter 13 Online School
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Bankruptcy Research Links
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Help When Preparing Petitions

http://www.bankruptcylinks.info/about/prepare-petitions

Complete Bankruptcy Motion Package (over 300+ templates)
http://www.bankruptcytrainingproducts.com/home/complete-bankruptcy-motion-package

Initial Intake Form Package
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