Facing large amounts of debts often seems isolating with no good options for fixing the situation. These moments are exactly what bankruptcy was created to address, and Chapter 7 bankruptcy can offer debtors primarily holding consumer-based debts the ability to eliminate these obligations so they can start rebuilding their lives. While bankruptcy does represent a potential way out of overwhelming debt, the process itself is governed by a number of complicated rules that directly affect the outcome of each case. In fact, bankruptcy is so intricate and specialized, an entirely separate court is used to oversee and administer each petition. This complexity is the central reason bankruptcy debtors really need to involve an experienced bankruptcy attorney in their case. The amount of debt a person is ultimately able to discharge directly impacts how useful this process is, and a bankruptcy attorney would know how to maximize opportunities for debt relief. Important changes to the procedural rules that apply in Chapter 7 bankruptcies are set to go into effect December 1, and could make it easier to get rid of creditors in some instances. A discussion of the new rule changes, and how they fit into the bankruptcy process generally, will follow below.

Proof of Claim

When a debtor files a bankruptcy petition, he or she is required to include a list of all unpaid debts, as well as the associated creditors. This information helps the court know which debts to discharge, but also triggers the requirement to notify creditors about the bankruptcy case so they can inform the court of their desire to receive a payout from the bankruptcy estate, assuming assets are available. Responses to these notices are called proofs of claim, and until recently, all unsecured creditors (credit cards, medical bills, personal loans, etc.) were required to file one in order to have any right to payment. Secured creditors (home mortgage and car loans, for example), with a few exceptions, did not need to file a claim to preserve their rights. Under the new rule, the deadline for filing a proof of claim is reduced from 90 to 70 days from the date the petition is filed, and secured creditors are now subject to these provisions, which now include a second obligation to file documents supporting the claim within 120 days of the filing date. These new deadlines may result in more untimely proof of claim filings, which a debtor can use to challenge their validity. However, note that many Chapter 7 bankruptcies involve individuals with no assets, and in this situation, the court will inform creditors not to file a proof of claim since no proceeds exist to pay any obligation.

Objections to Claims

Bankruptcy trustees (court-appointed individuals who administer the procedural aspects of the case) are permitted to object to a creditor’s claim in certain instances, and if the creditor does not respond, or the court agrees with the trustee’s position, that claim will lose rights to payment. Some examples of grounds to object to a claim include:

• The claim falsely indicated it was secured;
• The claim was filed with the intent to harass the debtor; or
• The supporting documentation needed to legitimize the claim was not attached.

Notice of an objection to a claim is required to be sent to the creditor so it has an opportunity to contest the challenge. Previously, creditors who did not receive notice of an objection via certified mail would use this fact as grounds to have the objection nullified, but under the new rules, service by first class mail is now considered sufficient for all creditors, outside of banks and other depository institutions. This change puts the onus on creditors to include correct contact information, and may take away a significant method creditors use to protect questionable claims.

Get Legal Advice

Bankruptcies are a powerful debt relief tool that should be considered when financial obligations spin out of control. Christopher L. Arrington, P.C. understands the stress and emotional toll of debt, and has years of experience helping clients get the help they need through Chapter 7 bankruptcies. Call the Danville office to schedule an appointment and learn how this law firm can assist you.