Creditors Can Come With A Lot Of Baggage.
Video Transcribed: Oklahoma City Bankruptcy Attorney Edward Kelley with 888-DEBTLINE, answering your bankruptcy questions. We are in the middle of the series, How to Save Your Home and/or Car in a Chapter 13 Bankruptcy. As I said, this time we will be talking about what this looks like from the creditor’s side. For very basic, a creditor just means someone you owe money to.
They have a right in your bankruptcy to be heard, and file a proof of their claim, et cetera. That’s often the first stage in a chapter 13 where you’re trying to save your house, is arguing about what do you owe.
Usually, you can think of the chapter 13 plan as sort of a negotiation with your trustees and creditors as to, here’s what I actually owe, here’s how I’m going to pay it. However, you’re backed with your absolute right to do it. It’s not like they have to okay it. They can certainly object, and then you’ve got to explain, and they’ve got to explain why they have different ideas on what you owe or how you should pay it. But generally, that’s not a huge issue.
It’s usually pretty clear what you owe, but you want to make sure your lawyer and you look over what’s called the proof of claim. That’s what a creditor files in a 13, in order to get paid by the trustee when you pay the trustee, and in order to lock in what you’re going to pay them over the life of the plan.
Unfortunately, in most of these foreclosure cases, I can’t get good numbers or proof of claim in time for the first plan. Just understand when you do this, you’re probably going to have at least two rounds of plan. One where you take a stab at it to get something filed and stop the foreclosure action, and I always try to get the figures, but I haven’t often been successful.
And then one where they file a proof of claim, which will say, “Here’s what the arrearage is, here’s what the remaining balance of the note is,” et cetera. That’s what I can work with to get your plan.
Here’s another thing to know about a 13. Basically, you’ve got a period between filing and what’s called confirmation. That’s the big thing you want to achieve in your 13. Of course, the longterm goal in any bankruptcy is discharge. Of course, in 13 that’s three to five years away.
But the first goal in a 13 is confirmation. Get your plan confirmed. That means that the trustee says, “This is good, we accept it. This is what we’re going to do.” Of course, in that process, both the trustee and all of your creditors have an opportunity to object to whatever plan you come up with.
From the creditor’s side, the other piece is they’re entitled to something called adequate protection. The trustee generally doesn’t make any payments on your behalf until your plan is confirmed, unless you ask them to. Also bear in mind, you’ve got to voluntarily make the plan payment you propose before it’s confirmed. Let’s say you and I come up with $1000 a month is what you’re going to pay. $500 mortgage payment, $500 in arrearage.
We propose that. Well, if you don’t immediately send a check into the trustee for that $1000, obviously it’s not going to get paid and it also needs to be spelled out in the plan that that payment should be made immediately. Another hangup. Generally that creditor has to file their proof of claim before the trustee will do it. I say all this so that you understand the complexity of a chapter 13.
Please don’t try this on your own. Don’t do this at home. This is definitely a case. You might get through a seven with some help from the clerk or the court, even though they’re not supposed to. Chapter 13, unless you’re an ex-lawyer or paralegal who’s worked on these, you’re going to have a real tough time getting anything confirmed, and there are big mistakes you can make.
If you don’t make that voluntary payment, the trustee is going to object, and if you don’t catch it up right away, they’re going to try to dismiss your case, which brings it all back.
From the creditor side, they’ve got to file a proof of claim. If you fail to make those payments, they can file a motion at any time called a motion to abandon, and/or a motion to lift the stay.
Abandon doesn’t necessarily mean you’re abandoning it, although that’s the actual outcome. What that means is they’re asking the trustee to abandon their interest in the property. When you do any bankruptcy, basically the trustee steps in as you as to any property that is not exempt.
If the creditor makes that motion and it’s successful, then the trustee says, “I want none of this.” If they do a motion to lift the stay, which is, as I explained in an earlier video, a federal law that prohibits them after the filing of a bankruptcy from taking any collection action.
If they get that stay lifted, if the trustee allows that, of course you get a hearing and you get to argue about it. Often if they do that, you file a response to set a hearing and then work it out with them ahead of time. But if they get that stay lifted, then bam, they’re right back at whatever point they were at in the foreclosure.
As I explained earlier, if they were past the sheriff sale and moments from presenting a confirmation order to the judge, it may be as easy as that. Soon as they get their order from the bankruptcy court terminating the stay and abandoning the property, they can go right back to the state court judge and you’re out of luck.
These are things to consider. In the next video, we’re going to go deeper into what it looks like to save your property through a 13 plan in the later stages. As always, if you have any questions, 1-888-DEBTLINE, or email me at edward@wirthlawoffice or on Facebook at our group called Oklahomans for Debt Relief.