The “Meeting of Creditors” in a Chapter 7 Case

Posted by Kevin on December 22, 2020 under Bankruptcy Blog | Comments are off for this article

In virtually every Chapter 7 “straight bankruptcy” case, you never go to court. But you DO go to a formal meeting, usually lasting 5 to 10 minutes, one that you must attend. If you don’t, your case can be dismissed.

This meeting is with your Chapter 7 trustee, but it is misleadingly called the “meeting of creditors.” It is sometimes referred to as the “341 hearing,” named after the Section 341 of the Bankruptcy Code which addresses it. 

This meeting is not one in which all your creditors attack the debtor for filing bankruptcy.  What usually happens is that the trustee will question the debtor about his or her petition, or documents that were submitted after the filing.  The questioning is usually not intensive.  Although creditors are given the opportunity to be there, most of the time they do not attend.  Why not? Because usually there is no reason for them to attend. The grounds for objecting to bankruptcy are very limited so most creditors can’t object. So they don’t waste their time.

The creditors that tend to be at the 341 hearing are those which have collateral in personal property such as your motor vehicle or furniture, or creditors with an axe to grind.  In the past in New Jersey, certain collateral creditors sent representatives to the 341 hearings.  They routinely questioned debtors usually about their intention about the collateral (retain or surrender). But now, most of these creditors forego the 341 hearings in favor of making arrangements with the debtor’s attorney either over the phone or by email.    

The axe to grind creditors are usually ex-business partners or ex-spouses.  For them, its just not just the money, it’s  personal.  My experience has been, however, that trustees are very adept at controlling these types of creditors, and they make sure that the 341 meeting is not used as a vehicle for making ad hominem attacks on the debtor.  That does not mean that the trustee will not give such creditors some leeway in questioning the debtor.  The one area of concern is that these creditors tend to know the debtor pretty well as opposed to credit card companies or mortgage lenders.  They may know if the debtor had been engaged in cutting corners or engaging in questionable behavior.  Be sure to talk with your lawyer well in advance if you have any concerns in this area. He or she will warn you if your circumstances raise any red flags, and will prepare you for the meeting.

Rarely, if there isn’t enough time for legitimate questions, a second meeting of creditors can be scheduled. Or the conversation with a creditor might continue informally outside the hearing.

There is one person who is NOT allowed to be at the meeting: the bankruptcy judge. As the Bankruptcy Code says: “The court may not preside at, and may not attend, any meeting under this [341] section… .” So the meeting is definitely not a court hearing.

Conclusion

At most Chapter 7 meetings of creditors there are no creditors, or, at most, one or two. It’s rare that a creditor will ask tough questions, but it can happen. Your attorney will prepare you for the types of questions that will be asked at the meeting.   Be sure to share any concerns with your lawyer so you won’t worry unnecessarily.

Crucial Facts about Co-Signed Debts in Bankruptcy

Posted by Kevin on December 19, 2020 under Bankruptcy Blog | Comments are off for this article

Bankruptcy protects you from your co-signed creditor and also from your co-signer.  

Protecting Only Yourself

Assume that you and your co-signer are both legally liable on a debt to a creditor. And you can’t afford to pay the debt.

Let’s focus today on protecting yourself. If you can’t pay the debt, you have to consider two separate obligations—to the creditor itself, and to the co-signer.

Your Obligation to the Creditor

The obligation to the creditor is based on your promise to pay the debt. This obligation can most likely be discharged (legally written off) in a bankruptcy case. The creditor could object to the discharge based on your alleged fraud or misrepresentation, or other exceptions to discharge listed in the Bankruptcy Code. But those objections or exceptions don’t apply to most debts.

Your Probable Obligation to Your Co-Signor

Usually, you have a distinct legal obligation to the other person legally liable on the debt.  What exactly that obligation is depends on the circumstances.

Assume the other person co-signed to enable you to get credit.  You may have entered into an oral or written agreement with the co-signer that if the co-signer ever had to pay the debt, you’d have to pay back the co-signer. Or it could have been something not specifically said or written down, but understood.  In addition,  you could have agreed that if the co-signer were sued, you would be responsible for any costs, like legal fees, incurred by the co-signer in a lawsuit brought by the creditor.

Being Practical

There’s a good chance the creditor is going to pursue whoever is legally liable to it. That would usually be both you and the co- signer. So you need to protect yourself both from the creditor itself and from any potential liability to the co-signer. A bankruptcy would likely discharge both obligations, protecting you from both.

So when you file bankruptcy, it’s critical to list both the creditor and your co-signer on your schedule of creditors. Otherwise you could remain liable to your co-signer after your bankruptcy case is finished if he or she paid off your debt.

Can Your Co-Signer Object?

Just like the creditor, your co-signer could try to object to the discharge of your obligation to him or her. But such an objection would have to be based on your fraud, misrepresentation, or similar bad behavior in the incurring of the debt. As stated above, these objections are rare. The co-signer would have to show that you somehow fooled him or her into being the co-signer. For example, if you had assured her that your credit was good when it wasn’t, or that your income was much more than it really was, those could be valid grounds for objecting to the discharge of your obligation to the co-signer.

If you suspect that a co-signer may object to your discharge (for valid or invalid reasons), explain the situation thoroughly to your bankruptcy lawyer. He or she can access the situation, give you appropriate advice, and, in some cases, can take any appropriate action to minimize your risks.