Posted by Kevin on August 6, 2019 under Bankruptcy Blog | 
Lawsuits against You that Bankruptcy Ends
Many legal claims against you or your closed or closing business are resolved by the filing of your bankruptcy case. They are resolved either legally or practically, or both.
Claims that are legally resolved by your filing of bankruptcy are those intended to make you pay money. The discharge (the legal write-off) in bankruptcy of whatever debt you owe will usually result in you not needing to pay anything on the claim under Chapter 7 “straight bankruptcy.” There’s not much point to a lawsuit to determine whether you owe money or about how much you owe if any such debt will just get discharged in bankruptcy.
Lawsuits that Bankruptcy Does NOT End
However, there are certain types of debts that would still need to be resolved by a court. In these situations the creditor would likely get permission from the bankruptcy judge to start a lawsuit or to continue one already started. Here are three types that need court resolution.
1) Determining the Amount of a Debt
If a debt is being discharged in a no-asset Chapter 7 case—one in which all assets of the debtor are “exempt” and protected—then, as indicated above, the amount of that debt makes no practical difference. Whatever the amount of the debt, it is getting discharged without payment of anything towards that debt.
But in an asset Chapter 7 case, in which the bankruptcy trustee is anticipating a pro rata distribution of the proceeds of the sale of assets, the amounts legally owed on all the debts need to be known for that distribution to be fair to all the creditors. That’s because the established amount of any single debt affects the amounts received by all the creditors. So litigation to determine the validity or amount of a debt needs to be completed, even if by a relatively quick settlement.
2) Possible Insurance Coverage of the Debt
If a claim against a debtor may be covered by insurance, then the affected parties likely want the dispute to be resolved legally.
That’s because a court needs to determine 1) whether the debtor is liable for damages, 2) whether those damages are covered by the insurance, and 3) whether the policy dollar limits are enough to cover all the damages or instead leave the debtor personally liable for a portion. The following types of business litigation tend to involve insurance coverage issues:
- vehicle accidents involving the business’ employees or owners, especially those with the complication of multiple drivers (and thus, multiple possible insurance coverages)
- claims on business equipment damaged by fire or flood, or stolen
In these situations the bankruptcy court will likely give permission for the litigation to continue outside of bankruptcy court, while not allowing the creditor to pursue the debtor as to any amount not covered by the insurance policy limits.
3) Nondischargeable Debts
Some of the biggest fights about business-related debts occur when a creditor argues that its debt should not be discharged in the bankruptcy case. The grounds for objecting to discharge are quite narrow—in general the debtor must have defrauded the creditor, embezzled or stolen from the creditor, or intentionally and maliciously hurt the creditor or its property.
Also, and much more prevalent in the last few years, are student loan debts. Since the average student loan debt for an undergraduate is zeroing in on $40,000, litigation over whether the student loan debt is dischargeable, is become much more commonplace.
Posted by Kevin on November 6, 2013 under Bankruptcy Blog |
The Cast of Characters
You—the Debtor
A Chapter 7 debtor is looked at quite differently from a Chapter 13 debtor. Focusing here on one main difference, Chapter 7 fixates on who you are financially at the moment your case is filed. Chapter 13 focuses not only on that moment, but also who you are financially for the next the three to five years (the length of your payment plan).
For example, if you started earning a higher income a year after your case is filed, that would have no effect if you had filed a Chapter 7 case. But in a Chapter 13 case, that income increase would likely increase what you’d have to pay your creditors. On the other hand, because Chapter 7 pretty much doesn’t get involved in your future, it also doesn’t protect your future income from certain potentially dangerous debts which are not written off, such as certain taxes and child and spousal support arrearage. Chapter 13 does protect such future income. It allows you to pay these kinds of special debts based on your budget instead of leaving you at the mercy of those creditors’ aggressive collection powers.
Your Primary Challenger—the Trustee
In both Chapters 7 and 13, most likely the person you would have the most contact with would be the trustee. They are carefully selected and supervised individuals who are assigned to your case to take care of certain tasks. I called them your “challengers” because that’s their primary job, but most of the time your attorney and you will work cooperatively with them.
The Chapter 7 trustee’s most important task is to determine whether or not he or she has the right to take anything from you—in other word whether everything that you own is “exempt,” meaning that you can keep it all, as is usually the case. The Chapter 13 trustee’s two primary tasks are to raise any appropriate challenges to your proposed payment plan, and then, once a plan is approved by the bankruptcy judge, to distribute to creditors payments that you make under that plan.
Your Adversaries—the Creditors
Under both Chapter 7 and 13, your creditors can play a major role but often don’t. They can challenge your ability to discharge (write-off) their debts, and can raise a variety of objections. Often, we don’t hear from them at all, but if we do it’s usually a secured creditor (one who has a right to collateral such as your home or vehicle) or a special “priority” creditor—a taxing authority or support enforcement agency. How the various kinds of creditors are handled in Chapter 7 vs. 13 will be discussed in future blogs.
The Enforcer—the U.S. Trustee
This is an office under the U.S. Department of Justice which administers and, to a large degree, oversees the whole system, including the Chapter 7 and Chapter 13 trustees. You will usually not hear directly from them, and if you do it’s usually not good news, indicating that you or your paperwork are not following the rules.
The Paper-Pusher—the Bankruptcy Clerk
This is the office where we file the bankruptcy documents (which is virtually all done electronically, not by paper being physically delivered anywhere). They send out the official bankruptcy court notices.
The Deciders—the Bankruptcy Judges
A bankruptcy judge is assigned to every Chapter 7 and Chapter 13 case, but mostly they work behind the scenes. You will almost never actually go to the judge’s courtroom in a Chapter 7 case, and seldom in a Chapter 13 case.
In most Chapter 7 cases, a judge is hardly involved, except in signing the discharge order releasing you from your debts at the completion of your case, assuming that it proceeded appropriately. In the relatively unusual situation of a creditor objecting to the discharge of its debt, the bankruptcy judge will decide whether the objection meets the relatively limited grounds for a debt not to be discharged.
In contrast, a judge is always involved in a Chapter 13 case, at the very least in the approval of your payment plan at what is called the confirmation hearing. But again, you almost never need to attend this hearing, which is taken care of by your attorney. Because of the length of a Chapter 13 case, it’s more likely than in a Chapter 7 case that issues will arise that need the judge’s attention—changes in your plan if your circumstances change, challenges by creditors or the trustee if you are not meeting the terms of your plan, and such. Chapter 13 is a 3-5 year journey that you take with the court, the trustee, your creditors and most importantly, your attorney. So a word to the wise, make your payments in a timely manner and stay in close communication with your attorney throughout your case so that you know whether issues are being put before your judge and how he or she is deciding them.
