What to do when you receive a Notice of Bankruptcy? Step 5: Do you need an attorney?

When you receive a Notice of Bankruptcy, you are likely to have a lot of questions.  In this series we have tried to help walk you through how to answer some of those questions, but unfortunately the process is complicated and you may only have more questions now that you know your rights and deadlines.

Because those meetings and deadlines happen, in most cases, in a very short period of time, it's important to get advice and get it quickly if you have questions.  Waiting to determine your next move could result in you waiving certain rights.  And taking action without all the information could be even worse, if you violate the automatic stay for example.

Therefore, if you have any questions at all about the best way to proceed when you receive a Notice of Bankruptcy we recommend consulting with an attorney, even if just for one meeting.

More specifically an attorney should help you be able to:

1.  Determine whether you are a creditor or some other interested party, and in any event what rights you may have to challenge the discharge in those situations.

2.  Determine if any action you are currently taking is in violation of the automatic stay or permissible.

3.  Determine whether a debt owed to you may be non-dischargeable, or whether some of the assets may be available to pay that debt.

4.  Determine whether or not you should file a Proof of Claim, and explain the benefits and consequences.

5.  Determine whether or not you should file an adversary proceeding, and explain the benefits and potential consequences.

6.  Assist you in proving fraud if you believe it exists in your specific case.

7.  Determine the potential cost of making any of these challenges and what you stand to gain.

If you are interested in consulting with one of our attorneys relating to a case in Massachusetts, click here to schedule a consultation.

What to do when you receive a Notice of Bankruptcy? Step 2: Are you a creditor?

If you receive a Notice of Bankruptcy you need to determine why you received the Notice. You might be a creditor, an interested party, or a codebtor.  Creditors are not the only ones who receive a bankruptcy notice, and even if you're not a creditor you may have an interest in what happens in this bankruptcy case.

The Notice will not tell you why you received it.  A sample notice, shown below, doesn't have your name anywhere on it.  It does, however, have the name of the debtor and the case number.  These two pieces of information should help you determine whether you are a creditor or some other interested party.

The Debtor, whose name is listed on our sample notice above as Sample Debtor, is the person who has asked the bankruptcy court for relief with their debts.  If you are aware of a debt that the debtor owes you then you are a creditor and you should review the other information within that Notice.  As a creditor you have certain rights that may include filing a Proof of Claim and attending the Meeting of Creditors.

If you're not sure if the debtor owes you money, then you might be a creditor or you might be something else, such as a contingent creditor, a co-debtor, or simply an interested party.  To determine why you received this Notice, you must look at the schedules.  The Bankruptcy court documents are public record and may be reviewed at the court or online if you have a Pacer access account.  If you need help accessing these files any bankruptcy attorney will have an online account access and be able to look up the case file online.

Once you have access to the file, you will want to review the Bankruptcy Petition and Schedules to figure out where your name appears.  If you are a creditor then your debt should be listed in one of the Schedules of Creditors.

If you are not a creditor you may still have an interest in the bankruptcy proceedings for some other reason.  For example a codebtor (someone who is also responsible for a debt that the debtor owes) could be left being wholly responsible for a debt if the debtor is discharged of that debt.  You might be a codebtor if you cosigned for a loan for the debtor, or if they cosigned for a loan that you took out, or if you borrowed money together for any reason (such as co-owners of a house with a mortgage).  Codebtors are listed on the Schedule of Codebtors.

If you are not a codebtor or a creditor then your name may still appear somewhere else in the schedules, identifying why you received the Notice.  For example, you may receive a Notice of Bankruptcy if you have a lease or other contract with the debtor, even if they are not behind on their payments.  Reading all of the schedules carefully should help you discover why you received the notice, whether you are a creditor, codebtor or some other interested party.

Once you identify why you received the Notice, you can begin to evaluate what type of action you should take.  For example the Notice tells creditors what many of their rights and obligations may be.  The next step, therefore, is to identify: What are the important dates and deadlines I should keep in mind?

What to do when you receive a Notice of Bankruptcy? Step 1: Identify the Chapter

If you receive a Notice of Bankruptcy, like the samples shown below, the first step is to identify what chapter the debtor is requesting relief under.  There are multiple types of bankruptcy and each has different rules and requirements.

The title of the Notice identifies the Chapter that the bankruptcy is filed under.  Below we have included samples from the two most common bankruptcies:

A Chapter 7 Notice for a no-asset case:

A Chapter 13 Notice for a payment plan case:

As you can see the title of the Notice identifies whether it is a Chapter 7 or Chapter 13 case.  The notices differ as well in terms of the instructions they may provide because of the differences in these types of cases.  Below we explain a little more about why the type of case matters.  If you would like more information about bankruptcy visit our website.

The most common types of bankruptcy that you will encounter are Chapter 7, 11 and 13.

Chapter 7 Bankruptcy sometimes referred to as "liquidation", is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Chapter 7 is available to both individuals and businesses. Under Chapter 7 the debtor may claim certain property as exempt under the governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. After liquidation of these non-exempt assets, all remaining qualified debts are then discharged and the creditors are out of luck.

Chapter 11 Bankruptcy sometimes referred to as "reorganization", is designed for debtors in financial difficulty who may have the ability to pay their existing debts in part. Chapter 11 is available to both individuals and businesses, though is more typical for businesses. Under Chapter 11 the debtor must propose a plan that results in more payments to debtors than they would get under a liquidation. The plan must be approved by a council of creditors.

Chapter 13 Bankruptcy involves the repayment of all or part of the debts of an individual with regular income. Chapter 13 is designed for individuals with regular income who desire to pay their debts in installments over a period of time. Debtors are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code. Under Chapter 13, the debtor must file with the Bankruptcy Court a plan to repay their creditors all or part of the money they owe, using future earnings. The period allowed by the court to repay the debts may be three (3) to five (5) years. The court must approve the plan before it can take effect.

Our next post will address the following step for identifying what you should do with this notice after you have identified the type of bankruptcy: Are you actually a creditor, or did you receive the Notice for some other reason? 

A Step-By-Step for Bankruptcy Creditors: What to do when you receive a Notice of Bankruptcy.

If you receive a Notice of Bankruptcy, like the sample shown below, you should ensure that you know why you received it and what your rights are.  The first step is to read the Notice.  It contains much of the information you need to know, as well as instructions on what to do if you wish to respond.

Receiving a Notice such as this one, likely means that you are a creditor and the debtor is trying not to pay the debt they owe you.  But you may have remedies if you take action and know your rights.

Over the next series of posts we will help you understand the steps you should take when you receive a Notice of Bankruptcy.  The questions you need answered include:

What kind of Bankruptcy is it (most likely options include 7, 11 and 13)?

Are you actually a creditor, or did you receive the Notice for some other reason?

What are the important dates and deadlines I should keep in mind?

What is your exposure to liability if the debtor receives their discharge?

Should you hire a bankruptcy attorney to help you evaluate your claims?

Once you answer these questions you will be prepared to respond to the Notice of Bankruptcy, appropriately.