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?

The Emergency Chapter 13 – Skeletal Filings and What to Expect

You’ve been working with your bank on a mortgage modification, short sale, or deed-in-lieu of foreclosure. For whatever reason, your preferred course of action doesn’t work out, and you receive a foreclosure notice. The worst thing you can do is ignore it, but what happens if you do?

A complete Chapter 13 filing can take your attorney some time to prepare, and is usually approximately 30-50 pages long, depending on the complexity of your case. However, you may not have that much time, especially if a foreclosure auction is only days away, or the IRS has started to levy your paycheck. If you find yourself facing a foreclosure auction and want to try to keep your home, an emergency Chapter 13 filing may allow you to keep your home, pay back mortgage arrears over a 5 year period, and get current on other non-dischargeable debts, such as taxes and student loans.

Your attorney will work with you on the following documents, which can be prepared within hours, and filed with the court.

1. Ensure all tax filings are current.
2. Take pre-petition financial management course on-line.
3. Prepare and file voluntary petition.
4. Prepare and file Statement of Social Security Numbers.
5. Prepare and file Declaration of Electronic Filing.
6. Prepare and file Chapter 13 Agreement between Debtor and Debtor’s Attorney.
7. Prepare and file Joint Certification of Section 522(q) Obligations.

Once the above are filed, the Automatic Stay in bankruptcy will prevent further collection actions by your creditors. Foreclosure auctions will be postponed, lawsuits and other collection actions will be stayed, and garnishments will cease.

Immediately begin preparing all documents your attorney tells you to prepare the remainder of your bankruptcy case. The Court will issue an Order to Update regarding the missing filings. Generally, the order will require that you file all deficient (missing) documents in a period of time set by the court. This is a typical timeline for these filings:

1. In one week: File the Creditor Matrix (a list of all individuals and corporations you owe money to).

2. In two weeks: File all Schedules (outlining Real Property, Personal Property, Property Claimed Exempt, Creditors Holding Secured Claims, Creditors Holding Unsecured Priority Claims, Creditors Holding Unsecured Non-Priority Claims, Executory Contracts and Unexpired Leases, Co-Debtors, Current Income of Debtors, and Current Expenses of Debtors), Declaration Concerning Schedules, Statement of Financial Affairs, Statements of Intention, B22C Statement of Current Monthly and Disposable income with Calculation of Plan Duration, the Chapter 13 Plan, Evidence of Current and Sufficient Liability and Property Insurance, and the Disclosure of Compensation of Attorney.

Requests for more time must be made by motion, and the court will often grant a 2-week extension.
In any case, the most important thing you can do is immediately prepare your financial records, and provide them to your attorney. If this is not done immediately after filing the skeletal petition, then you may not meet these court deadlines. The Bankruptcy Court’s deadlines are very strict, and missing one or more may be grounds for having your case dismissed. If your case is dismissed you'll be back to square one and may not be able to file again.

What happens if I make a Mistake on my Bankruptcy Schedules?

Despite the fact that some lawyers like to consider themselves infallible, the reality is that we all make mistakes. This is even true of our clients sometimes.

If you have made a mistake on your bankruptcy schedules, there is a general right to amend as allowed by the Federal Rules of Bankruptcy Rule 1009. The rule allows for amending of schedules any time before the case is closed so long as Notice is given to the trustee and any entity affected (usually meaning notice to all creditors).

In Massachusetts, there is also a local rule (Rule 1009-1), which requires that in some cases if your amendment involves adding a creditor or changing your exemptions, then you must file a Motion with the Court requesting approval of the amendment. As a practical matter, filing a Motion to Amend for any amendment may be the safest way to get the Court's approval quickly.

The most important thing to understand here is that if you discover a mistake on your schedules or petition, immediately file (or have your attorney file) an amendment to ensure that your case proceeds smoothly and you do not get accused of providing false information.