My Client Filed Bankruptcy, How do I Collect?
Typically, we represent borrowers who want or need to file bankruptcy, but every so often we represent creditors – the people who are owed money. We are sometimes referred homeowner or condominium associations where the homeowner has unpaid assessments and has filed bankruptcy. Or, we will represent an individual who is owed money and the borrower has filed bankruptcy.
How does someone who is owed money collect it in a bankruptcy case?
First, you have to determine what type of bankruptcy was filed by the debtor. If a Chapter 13 (repayment plan) was filed then there is a high likelihood that unsecured creditors will be paid something, although how much depends on the particular facts of the case. If the debtor filed a Chapter 7 (liquidation) then you have to determine if there are assets that the trustee will liquidate? If yes, then the unsecured creditors may be paid. If there are no assets, then unsecured creditors will get nothing.
Second, you have to file a Proof of Claim in bankruptcy court. If the debtor files a Chapter 13 case, or a Chapter 7 case where assets will be liquidated, then file your Proof of Claim (or see an attorney to help you do this). If the debtor has no assets in a Chapter 7 available for liquidation, then filing a claim is pointless. You will spend time and maybe money to file the claim in the bankruptcy case, and the trustee will distribute nothing because the debtor has no assets and nothing was available for liquidation by the trustee.
Finally, or maybe as a precursor to being paid at all, make sure you are sending proper invoices to your client. As the debtor’s attorney, I need to list the creditor in my client’s bankruptcy petition. If you haven’t sent the debtor an invoice in 4 years, and you moved 3 years ago, how do I (or the borrower) know your proper address to give you notice of the filing of the bankruptcy petition? In a scenario like that, I may list you as a creditor in the petition at the old address (which has an expired forward mail order) so you get no notice because you moved, yet you still get discharged because you didn’t tell the debtor your new address.
For those of you who hold private notes and mortgages, and the borrower files a Chapter 13, then you must file a Proof of Claim (here in Tampa) if you want to receive your monthly mortgage payments and be caught up through the bankruptcy court and trustee. Before doing so, also review the debtor’s Chapter 13 Plan to see how they propose to treat your secured claim in the bankruptcy case. If the debtor proposed to surrender the property, the bankruptcy stay may terminate allowing you to foreclose, or the debtor may propose to strip (or remove) your second mortgage, or the debtor may propose to modify your mortgage or simply catch up all arrearages through the bankruptcy plan. Because every case is fact specific, we suggest you seek out a creditor bankruptcy attorney who can guide you through the process and get you paid. We can help with this, assuming there is no conflict of interest, or refer you to some excellent creditor bankruptcy firms locally.
For more information on debtor and creditor’s rights in bankruptcy, please subscribe to the Crushing Debt Podcast, on iTunes, Stitcher, and GooglePlay. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 727-261-0224 or email me directly at firstname.lastname@example.org.
Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.