If you believe you do not owe a debt, or owe less than the creditor says, object to its proof of claim in a Chapter 13 case.
If You Do Not Owe, Bring Your Dispute to the Bankruptcy Court
It’s not unusual that a dispute with a single creditor forces a person into bankruptcy. Often it’s just one otherwise ordinary creditor which is more aggressive than the others, suing you ahead of the others, and then garnishing your paycheck or bank account.
Sometimes it’s not just any extra-pushy creditor, but rather one that you’ve been fighting for quite a while. The fight you are having with that creditor may be the main reason why you filed bankruptcy.
Maybe you were in a serious vehicle accident, and did not have enough insurance coverage. You are being accused of causing the accident but don’t believe you were its primary cause. Because of major injuries to others you potentially owe hundreds of thousands of dollars.
Or you operated a business that looked promising for a while but then failed. You were accused of mismanagement by a partner or investor and were sued. Fighting this lawsuit has drained you financially.
Or perhaps you were accused of unduly influencing a parent or other family member to change his or her will. That turned into a contentious lawsuit against you.
The attorney fees and other costs of fighting the dispute have pushed you over the financial edge.
You’re in a Chapter 13 Case
Assume you either didn’t qualify for Chapter 7, or you needed the special tools of Chapter 13 to deal with special debts like your home mortgage or income taxes. So you’re in a Chapter 13 “adjustment of debts” case.
When a Single Creditors’ Proof of Claim Amount Makes All the Difference
As we discussed in recent blog posts, sometimes the amount of debts you have does not change how much you need to pay into a successful Chapter 13 case. But often it does matter. Your main adversary before you filed the Chapter 13 case may still try to make you pay too much to it through your payment plan. Or that adversary may even jeopardize your ability to have a successful case.
For example, your financial circumstances may require you to pay 100% of your debts in a Chapter 13 plan. If so your liability on a large claim could substantially increase how much and/or how long you’d have to pay. Assume you could otherwise finish your plan in 36 months by paying $750 monthly into your plan. An additional $18,000 proof of claim by your adversary could force you to pay that $750 monthly for two additional years. An even larger claim could force you to pay more than you could reasonably pay each month. If that proof of claim resulted in more debt than you could pay in 5 years, Chapter 13 would cease to be an option.
One way to solve these problems is to object to this adversary’s proof of claim.
Failure to File a Proof of Claim on Time
If you believe you don’t owe an adversary anything, you’d still list the disputed claim in your schedule of creditors. Otherwise you lose the opportunity to discharge (write off) that disputed claim.
Your adversary has a limited time to file a proof of claim with the bankruptcy court. If it fails to do so on time, you don’t have to pay it anything in your Chapter 13 case. The claim is then discharged without any payment at the successful completion of your case.
But it’s not likely that your adversary would mess up like this.
Objection to a Proof of Claim
More likely, your adversary would file a timely proof of claim. That claim would stand and you’d have to pay it under the terms of you plan unless somebody—usually you—objects to it.
If you object with the help of your Louisville bankruptcy lawyer, and your adversary doesn’t respond, the claim would be paid according how you state in your objection. So if your objection states that you owe nothing at all on the claim, again you would pay nothing.
It’s not unheard of that your adversary would simply not respond to your objection. Just like you, it may be tired of paying attorney fees, likely now also to a bankruptcy specialist. Your bankruptcy documents filed under oath may reveal to your adversary better than ever before that you have no pot of gold and so it’s wasting its time and money chasing you.
Responding to Your Objection
If your adversary does respond to your objection, the bankruptcy court could potentially decide whether you have any liability on the claim, and/or its amount. If a lawsuit on this was already pending in another court when you filed bankruptcy, the bankruptcy court may require the liability dispute to go back to that prior court to determine your liability.
Even so, for the reasons mentioned above there’s usually less incentive for your adversary to keep fighting you as aggressively as before.
If you are in a Chapter 13 case which is affected by how much debt you owe, your main adversary may mess up and fail to file a proof of claim. Or if it does file a proof of claim but you object to it, your adversary may fail to respond. Even if this adversary does jump through all the procedural hoops, its prospect of paying additional costs and a receiving a limited payoff usually forces it to be more pragmatic and settle the dispute.