Bankruptcy & Litigation Series: #4 Collections - Defendant Bankruptcy

When one of the parties in a collection action goes bankrupt, the result is very different depending on whether it is the defendant or the plaintiff.  As described in this previous post, when the Plaintiff files for bankruptcy, the suit may continue but becomes an asset of the estate.  But what happens to a collection suit when the Defendant files for bankruptcy?

Collection proceedings against a debtor are automatically stayed pursuant to 11 U.S.C. s. 362.  The debtor or debtor's counsel should file a Suggestion of Bankruptcy in the civil suit, but NOT filing a suggestion of bankruptcy does not have any prejudicial effect.

The Plaintiff should file a proof of claim if the case is filed under Chapter 11 or Chapter 13, or in a Chapter 7 where there are assets to distribute. The underlying debt will be included in the debtor's discharge, and should the Plaintiff pursue the case, will be in contempt of either the Order of Discharge or the Order of Automatic Stay, and face civil contempt penalties, including being forced to compensate the debtor for actual damages, attorney's fees and punitive damages.

What if there are multiple defendants?

In cases where there are multiple defendants, the case will be stayed as to the debtor, but the case WILL proceed as to the remaining defendants.  See 11 U.S.C. s. 362

Note that depending on the case, certain damages claimed in a civil or personal injury suit are not dischargable:

1. Money, property or services or an extension of credit obtained by false pretenses or actual fraud; or by a false statement
2. Debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;
3. domestic support obligations
4. Debts for, what is essentially, bank fraud
5. for any payment of an order of restitution issued under title 18, United States Code
6. Election law penalties
7. Certain condo fees

See complete list at 11 U.S.C. s. 523.

Bankruptcy & Litigation Series: #3 Collections - Plaintiff Bankruptcy

A bankruptcy case can impact other litigation in many ways.  Some cases will be halted automatically by the filing of a bankruptcy due to the automatic stay.  Others might not be stopped, but might not be controlled by the bankruptcy trustee.  And some cases may not be affected at all.  Navigating these interactions can be difficult even for attorneys who are experts in other areas of the law if they don't practice in the bankruptcy court.

What happens to a Collection suit when the Plaintiff files for bankruptcy? 

It is generally a good idea to file a suggestion of bankruptcy to alert the court to the bankruptcy filing.  Most courts will temporary delay the hearing of the case, however 11 U.S.C. s. 362 is not designed for this application.  Ultimately, the suit itself is an asset of the bankruptcy estate.  Like any other asset, it may be exempt depending on the value of the potential claim.  In the event that it is not exempt (and at all times before being abandoned by the trustee), the Trustee steps into the plaintiff's shoes during the administration of the bankruptcy estate.

The Chapter 7 trustee may then offer to settle, or compel the debtor to pursue the suit (although the Trustee will bear the cost of compensating counsel for any post-petition legal fees).  Any proceeds obtained during the suit (less any exempt portions) will be turned over to the trustee as property of the bankruptcy estate and distributed to creditors.

One thing Facebook is not good for: Collecting Debts!

Facebook, Twitter and social networks have grown well beyond their initial intentions. Like many online tools, businesses have found ways to use these networks to their advantage, whether through traditional straightforward advertising, or guerrilla marketing strategies. In some ways the possibilities are endless. But, a debt collection agency in Florida recently discovered one of the limitations on using these networks.

According to a recent article on The Washington Post online, a Florida judge ordered Mark One Financial LLC of Jacksonville, Fla., a debt collection agency, to not use Facebook or any other social media site in an attempt to locate a woman over a $362 unpaid car loan. The Judge also prohibited the company from contacting the woman's Facebook friends.

The Judge felt, and I can understand why, that contacting the debtor on a public forum such as Facebook was a violation of the debtor's privacy. But just because they can't contact you, doesn't mean debt collectors aren't still using social networks and online resources to find out information about you. Remember that anything you post online is now out there and available for your creditors to find.

For more information about Massachusetts law relating to Debt Collection and fair practices visit the Massachusetts Trial Court Law Libraries page here.

Small Claims Redefined - Up to $7,000

As part of AN ACT RELATIVE TO ECONOMIC DEVELOPMENT REORGANIZATION on August 5, 2010, the Massachusetts legislature raised the amount in dispute that may be heard in small claims court from $2,000 to $7,000. SECTION 156 of said Act states:

Section 21 of chapter 218 of the General Laws, as so appearing, is hereby amended by striking out, lines 6 and 35, the following words, "two thousand dollars" and inserting in place thereof, in each instance, the following figure:- $7,000.

There is no doubt that this will increase the number of small claims cases, with the hope that it will also decrease the caseload on the district court process. This change may also increase the overall number of claims, however, by making it easier for potential creditors to seek judicial relief from debtors.

Small claims court is operated slightly differently from ordinary district court. The process is streamlined so that disputes are heard quicker than in the district courts. Instead of a judge and jury hearing the case, a court magistrate will preside and make a judgment.

Small claims court was designed to create a user-friendly environment for resolving disputes over an amount of money that was too small to justify hiring an attorney or having lengthy discovery and trials. Because of the expanded jurisdiction of small claims court to hear controversies over larger sums of money, there is more an incentive to hire representation since there is more at stake. The process can still be cheaper than district court, though, because of the simpler and quicker procedure.

For more information and frequently asked questions regarding small claims court procedure in Massachusetts, visit the Massachusetts Small Claims website or our new Small Claims page.

If you are owed money that you have not been successful in collecting on your own, or if you have had a small claims suit filed against you (called a "Statement of Claim and Notice of Trial") and wish to speak with an attorney regarding representation, contact Attorney Matthew Trask or call 508.655.5980 to schedule a One-Hour Initial Consultation.