Blog
Law Offices of Chance M. McGhee

Call Today for a FREE Consultation

210-342-3400

Archive for the ‘amended creditor schedule’ tag

Forgotten Debts

April 22nd, 2019 at 7:00 am

What do you need to do, what efforts is worth taking, if there are debts you don’t have any records on or you’ve forgotten about?  

 

Several blog posts ago we introduced the law that debts “neither listed nor scheduled” risk not being forgiven in bankruptcy. Section 523(a)(3) of the Bankruptcy Code. This follows the bankruptcy principle that debts are forgiven—“discharged”—unless a debt fits within a specific exception. Debts “neither listed nor scheduled” is one of the exceptions.

Related to this exception to discharge we’ve recently looked at:

  • how to add a debt after filing your case that you didn’t originally list, and your timing for doing so
  • an exception to this discharge exception, that is, your unlisted creditor’s debt still being discharged if it still finds out about your case, and does so on time
  • debts sold or assigned to collection agencies

This leaves one last question for today about unlisted debts:

What do you do if you don’t know all of your debts because you’ve moved or lost track of them for any other reason?

This practical question gives us the opportunity to apply the principles we’ve been digging into these last few blog posts.

The Potential Consequences of Not Listing Debts

Start with the assumption that you will continue to owe any debt you don’t include in your bankruptcy debt schedules. Obviously, filing any kind of bankruptcy is a big deal. The discharge of debts is a legal right, but one that you can exercise very seldom. Hopefully it’s something you’ll only need once in your life. You want to do it right.

Chapter 7 “straight bankruptcy” generally takes about 4 months from start to finish. It costs pretty much the same in fees and damage to your credit whether you include all your creditors or miss one or two. You vastly increase its effective cost if afterwards you continue owing a debt or two that you could have discharged. Plus, instead of getting the peace of mind of a full fresh start, you’d be saddled with potentially avoidable debt.

Chapter 13 “adjustment of debts” involves a payment plan lumping together all your debts. Most unsecured creditors have to share out of a pool of money based on what you can afford to pay. That is often a small percent of what you owe, perhaps even 0%.  If you neglect to list a debt in your schedules, it can’t participate in your plan. So, instead of paying that debt the same percentage that you’re paying others, you’d have to pay it in full. Since all your money is earmarked for your other creditors, you’d have nothing to pay the unlisted creditor. So when it forced you to pay—such as by garnishing your paychecks—that would disable your Chapter 13 plan. Frankly, that would be a mess.

So, of Course, Do All You Can to Know and List All Your Debts

We don’t want to scare but rather to motivate you. It’s worth the effort to figure out who you owe and to find their accurate addresses.

One obvious place to start is with a credit report. Talk with your bankruptcy lawyer about getting free ones from all three of the major consumer credit agencies.

But it’s very important to know that a credit report is NOT necessarily a complete list of your debts. For some people it might be. But for others their credit reports would be woefully incomplete. Financial institutions and major consumer creditors will quite reliably be on your credit reports. But medical providers and various other kinds of creditors—not so much.

It IS worth sifting through ALL of your paper and computer files (and piles!) to find any other debts. Scour through your memory about possible obligations you haven’t thought about lately. Think about old unpaid landlords and utilities, possible bounced checks, or unpaid personal loans from friends or family.

Possible Claims, Ambiguous Amounts

Consider situations where you may or may not owe anything. Are there any old or more recent unresolved vehicle accidents? Might you have caused personal or property damages to some person or business? Are there any unusual possible claims against you, for defamation, embezzlement or other misuse of funds or of trust? Could there be any claims come out of an old or not so old divorce, non-marital relationship, any family fight, or the closing of a business? Are there any almost forgotten threats against you to pay for anything whatsoever?

Bring any of this stuff up with your bankruptcy lawyer, preferably at your first meeting. Some situations may genuinely not warrant including as a possible debt. Your lawyer is the person who knows how to protect you, and to guide you through the tough judgment calls. You need to ask the questions so that he or she can give you the right advice.

Debt Amounts

 It’s generally not that important to know how much you owe—a sensible estimate is often good enough. But again talk with your lawyer, because sometimes—depending on the type of debt—the amount is important.

Collection Agencies

If you know the original creditor but not a subsequent collection agency, start by listing the original creditor. It may well pass on your bankruptcy filing information to the collector (although you can’t count on this). Also, the original creditor may actually still owe the debt. The collector may have only a temporary collection agreement.

You still do want to list any and all collectors on an account. That’s because it’s hard to know who owns the debt. That may take not just looking through all your papers but also doing internet research and making phone calls. Your bankruptcy lawyer and his or her staff will be your guide.  

Very Old Debts

Most debts can get old enough that the creditors can no longer collect on them. Most states have statutes of limitations on the collection of debts.

But those laws are often complicated, with different lengths of time for different kinds of debts. There are different triggers that start the time running, and other events that can suspend (“toll”) the time from running. The time limit can sometimes be extended simply by you being out of state or hiding from collection.

Even if a statute of limitation arguably applies you’d rather not have to defend a collections lawsuit on this basis.

Talk with your bankruptcy lawyer about what to do to best protect your from old and very old debts.

 

Debts Sold or Assigned to Collection Agencies

April 15th, 2019 at 7:00 am

What happens if you list a creditor in your bankruptcy case but, unknown to you, it sold the debt to a collection agency that you don’t list? 

 

Our blog post two weeks ago was about needing to list all your debts in a bankruptcy case in order to write them off. This is part of a series of blog posts about debts that may not get discharged (written off) in bankruptcy. The law says that bankruptcy does not discharge debts that are “neither listed nor scheduled” in the bankruptcy documents. Section 523(a)(3) of the Bankruptcy Code.

Special Scenarios

This raises some practical questions, including the following:

  1. Is a debt covered if you don’t list it but the creditor still learns about your bankruptcy case?
  2. What happens if you list the creditor but it had previously sold the debt to a collection agency?
  3. What do you do if you don’t know all of your debts because you’ve moved or lost track of them for some other reason?

We addressed the first of these last week, and discuss the second one today.

Debts Listed but Sold to Collection Agency

So you list the creditor on your bankruptcy schedules but after filing learn it sold the debt to another entity. Let’s assume you know the name and address of the new creditor or collection agency.

Debts Sold Before Your Bankruptcy Filing

Let’s start with the situation that the debt was sold to the new entity before you filed the bankruptcy case. You only find out about it after your filing. You either receive a new notice about it or dig up an older one you hadn’t found earlier.  What should you do?

There’s a decent chance that when the creditor you listed gets the bankruptcy notice it will forward it to the new owner of the debt. That would seem to be the sensible and business-like thing for it to do. Then the new owner would learn about your case even without being listed on your bankruptcy schedules. It would be covered by your bankruptcy case and the debt would likely get discharged. (See our last blog post about the creditor’s “actual knowledge” exception.)

Three Problems

There are three problems with this.

First, the listed creditor may simply not bother to pass on your bankruptcy notice to the new debt holder. The creditor no longer has any interest in the debt. It doesn’t owe you any favors. Why shouldn’t it just throw away the bankruptcy notice, and not inform the new debt holder? Then this new debt holder—the creditor you actually owe—may well never find out about your bankruptcy. You could easily continue owing the debt. It’s not safe to rely on the listed creditor to tell the new debt holder. It’s way too risky.

Second, even if the listed creditor does pass on the bankruptcy notice the new debt holder may not receive it. Or that debt holder may simply say it never received it. Good luck getting proof that it did. Collection agencies sometimes attempt to collect debts (purposely or inadvertently) that a bankruptcy has legally discharged. Without proof that the collection agency received notice of your bankruptcy filing you may still owe the debt. At the very least you’d have a much harder time getting them to stop trying to collect on the debt.

Third, even if the new debt holder does receive notice about your bankruptcy filing, it may not happen fast enough. You have no control when your listed creditor would get around to passing on information about your filing. There would be some delay between the time the creditor receives the bankruptcy notice and when it forwards it. In some situations the timing when the new debt holder receives the bankruptcy information is crucial. See our last blog post for a discussion about this timing issue.

Formally Adding Creditors to Your Schedules After Filing

So instead of relying on your listed creditor to inform the new debt holder it’s better to take the initiative.

First, you can formally add the new debt holder to your bankruptcy schedules, after your original filing. Your lawyer does this through an “amended schedule.” This is generally the safest option. Here’s one local bankruptcy court’s information about this procedure.

You do have to pay a modest additional filing fee (currently $31—see item #4 in the court fee schedule).  Plus your lawyer might charge you for the extra service (although not necessarily).  

Another option may be to contact the debt holder—either yourself or your lawyer—without using an “amended schedule.” This contact may fulfil the requirements of the “actual knowledge” exception. What’s critical is to have appropriate evidence of this contact in case you need proof of it later. There may be timing considerations. Also, you may be required to use an “amended schedule” based on local bankruptcy rules.

 Don’t decide this on your own. Talk with your bankruptcy lawyer for advice about resolving the situation the safest and most cost-effective way.

Debts Sold After Your Bankruptcy Filing

Creditors should not sell or assign your debt after they get notice of your bankruptcy case. At least they shouldn’t without informing the new debt holder about your bankruptcy case.

But sometimes they do sell the debt after getting notice about your bankruptcy case, whether intentionally or out of carelessness. Then the discussion above applies. If your bankruptcy case is still active, your lawyer should probably file an “amended schedule” adding the new debt holder.

The creditor’s sale or assignment of the debt can also occur between the time you file bankruptcy and the time the creditor receives notice of it. It may sell or assign the debt after you file bankruptcy but before it knows about your filing.

Again, the discussion above applies. You could hope that when this creditor gets notice of your bankruptcy filing it will inform the new debt owner. There’s a decent chance that it would do so, since the sale had just happened. Its file on you may still be open or would have just been closed a short time earlier. But again, your listed creditor may still not bother to inform the new debt holder. So, talk with your bankruptcy lawyer as soon as you find out about new debt holder. Remember that timing can be extremely important. In most situations filing an “amended schedule to add the new debt holder is the appropriate solution.

 

Call today for a FREE Consultation

210-342-3400

Facebook Blog
Back to Top Back to Top