Bankruptcy Errors to Avoid - Part 1- Missing Creditors
There is one call every bankruptcy lawyer dreads getting from a client after their case has been closed. The call regarding a missing creditor - a creditor not listed on their bankruptcy schedules and now the creditor is making demands for payment or a lawsuit has been filed against the client by this creditor. It's a common mistake and one that unfortunately happens all too frequently. The Bankruptcy Courts are divided on whether or not a no-asset chapter 7 case can be reopened to add a new creditor. In the Western District of Texas where I practice, the current state of the law is you cannot discharge the claim of the creditor. If there was a distribution made to the creditors by the Chapter 7 Trustee then the law is uniform that the debtor is flat out of luck.
By the time potential clients contact a Bankruptcy Lawyer they are under a great deal of stress. Often they've stopped answering all creditor calls and trash all their mail. Obtaining a Credit Report helps a great deal, especially if it's one of the specialized reports designed for the purpose of preparing bankruptcy documents. A Credit Report is not a cure all. Not every creditor reports to one or more of the Credit Bureaus. A Credit Report lists: mortgage lender, car purchases and most but not all credit cards. Certain creditors are automatically listed on bankruptcy schedules such as the Internal Revenue Service (IRS). The foregoing types of creditors are listed because of requirements established by the local rules of a Bankruptcy Court.
There are many types of creditors and other potential claimants that do not show up on Credit Reports: small retailers; medical bills; ambulance bills; utilities; payday loans; pawned items; loans guaranteed for a family member or friend; money borrowed from a family member or friend; rent from an apartment complex or to the homeowner of the house you rented are examples of creditors not listed on a Credit Report. There are potential claimants such as those arising from of an accident which is not covered by insurance, a dispute with a neighbor over a variety of issues, unpaid tuition, are types of claims not listed in a Credit Report. If a client fails to disclose a creditor to their lawyer, this debt would not be listed in their bankruptcy. Another example of a missed creditor: I didn't think I owed the claimant anything and in fact, I think the claimant owes me.
On the business side of bankruptcy, there are potential claims by customers for warranty issues, business creditors the client guaranteed for their corporation or limited liability company. It's important to include every possible liability to your bankruptcy schedules.
The prime rule in real estate is location, location and location and in the same vein the prime rule in bankruptcy is notice, notice and notice (review, review and review). When filling out the bankruptcy questionnaire take time to reflect and think about every potential person or business who might claim you owe them money. There are two important things a client should do: first, not to rely on a Credit Report exclusively; second, take your time to reflect on who might be out there with a claim or potential claim. Remember, whether you really owe the claimant something is not the issue. The issue is giving notice to the claimant so that any potential claim is disposed in your bankruptcy. Even if you don't owe the claimant anything, you still may be faced with having to defend a lawsuit, which is expensive. This type of lawsuit can be avoided by simply providing a name, address, and some basic information.