In another episode of our popular #AskaPro webinar series, shareholder Milos Gvozdenovic and attorney Garry Masterson discuss the bookends of bankruptcy. They sat down to answer your burning questions on the life of a bankruptcy case, from receiving notice to wrapping it up. Following bankruptcy rules and procedures is critical for creditors to avoid legal problems and unnecessary costs.
To view the recorded complimentary webinar, click here.
Now, we’re sharing the top takeaways. Let’s dive in!
To view the recorded complimentary webinar, click here.
Now, we’re sharing the top takeaways. Let’s dive in!
How does the automatic stay work and what do we do?
The bankruptcy code has a section that protects the debtor when they file for bankruptcy. This means as soon as bankruptcy is filed, the individual debtor is protected from creditors. You, as the collector, cannot call the debtor, send billing statements, or make any efforts to try and collect that debt.
A common question arises around automatic payments. Once the stay goes into effect, creditors cannot continue to collect them. A debtor can proactively reinstate automatic payments while in bankruptcy. The key is they need to re-authorize the payment without prompting on your behalf.
Because the stay goes into effect as soon as the bankruptcy case is filed, no one is required to notify you. That gets tricky! What if you repossessed an asset because you didn’t know the debtor filed for bankruptcy?
Watch the webinar to hear how to handle this, as well as bank accounts, credit reporting,
A common question arises around automatic payments. Once the stay goes into effect, creditors cannot continue to collect them. A debtor can proactively reinstate automatic payments while in bankruptcy. The key is they need to re-authorize the payment without prompting on your behalf.
Because the stay goes into effect as soon as the bankruptcy case is filed, no one is required to notify you. That gets tricky! What if you repossessed an asset because you didn’t know the debtor filed for bankruptcy?
Watch the webinar to hear how to handle this, as well as bank accounts, credit reporting,
What happens if the debtor does not include the creditor in their petition, and we find out about the case via scrub?
Generally, you’re still bound by the automatic stay. If you were harmed by not being listed, there may be actions you can take.
What if the debtor says they're filing for bankruptcy, but the attorney won't verify? How long do you wait to start backup collection efforts?
Until you verify a debtor has filed for bankruptcy, don't take their word for it. They may have consulted an attorney but not filed. If you stop payments before receiving confirmation, you’ll lose out.
A slightly different yet very common situation occurs when a debtor’s first bankruptcy case is dismissed. While they say they plan to file a second, until they do, a creditor can proceed as normal.
A slightly different yet very common situation occurs when a debtor’s first bankruptcy case is dismissed. While they say they plan to file a second, until they do, a creditor can proceed as normal.
Are we allowed to stop the online banking and debit cards and make the member come into the credit union to withdraw funds?
We had a lot of questions about bank account access! For this one, the answer is no. They need to have full uninterrupted access to their personal money. This could be a potential stay violation.
Once the loan goes 30 days past due, we block debit cards. If they are in bankruptcy, do we need to allow them access to their debit cards?
The automatic stay supersedes your 30-day policy, so, you cannot block their access to their money.
What if the online account statement shows both the personal checking or savings accounts and the debt? Can you still send the statement?
Ideally, you want to remove the debt. For the full discussion on this tricky topic, watch the webinar.
When do you need to file the claim?
In a chapter 13 bankruptcy, you always want to file. If the plan provides payments to you as a creditor, you still need to file. The trustee won’t pay unless there’s a claim filed.
In a chapter 7 bankruptcy, you file a claim if you get a notice of assets. You’re generally an unsecured creditor if you need to file a chapter 7 proof of claim. There are some reasons a secured creditor may also want to file a claim in chapter 7. Watch the webinar for more details. Garry walks through some of his own experiences, which you may find helpful.
In a chapter 7 bankruptcy, you file a claim if you get a notice of assets. You’re generally an unsecured creditor if you need to file a chapter 7 proof of claim. There are some reasons a secured creditor may also want to file a claim in chapter 7. Watch the webinar for more details. Garry walks through some of his own experiences, which you may find helpful.
How do you apply trustee payments?
It depends. If you apply trustee payments incorrectly, it can be difficult to fix later because reallocating money forces you to spend significant time and energy. Plus, the court will dig into your records, which is never a good situation for your business. Make sure you allocate those payments correctly. Also know you may receive payments from the trustee and directly from the debtor.
Your payment processing division or process needs to understand from where funds are originating. Generally, you need to manually track these payments. Garry goes in-depth into specific scenarios he’s encountered. Watch the webinar to hear how complex this can get.
Your payment processing division or process needs to understand from where funds are originating. Generally, you need to manually track these payments. Garry goes in-depth into specific scenarios he’s encountered. Watch the webinar to hear how complex this can get.
Do you accept direct payments?
Generally, yes, but there are some clarifications. You’re actually required to accept those payments in many situations. Not doing so will cause issues. Likewise, in some situations, accepting direct payments could also cause issues.
If your debt isn’t included in the bankruptcy because the debtor wants to pay an unsecured debt directly, that’s great. Unfortunately, you may run into a situation where the attorney isn’t aware or a trustee finds out. Both will want the money back because secured debts should be the priority.
If your debt isn’t included in the bankruptcy because the debtor wants to pay an unsecured debt directly, that’s great. Unfortunately, you may run into a situation where the attorney isn’t aware or a trustee finds out. Both will want the money back because secured debts should be the priority.
How do you apply post-petition debtor payments if the trustee is paying pre-petition arrears? Many systems cannot apply payments if a debtor is too delinquent.
Unfortunately, the answer is spreadsheets. Keep track of every payment in a spreadsheet.
Garry continues to stress the importance of correctly applying payments and the consequences of not doing so. If you find yourself in this situation, you’ll definitely want to check out the full conversation here. (Hint: you may have to go in front of a judge.)
Garry continues to stress the importance of correctly applying payments and the consequences of not doing so. If you find yourself in this situation, you’ll definitely want to check out the full conversation here. (Hint: you may have to go in front of a judge.)
Is having payment history spreadsheets okay in case of an audit or anything similar?
If you're tracking those payments outside your system because of bankruptcy, it should be fine. To be safe, you may want to run this past your compliance department and internal counsel. I would ask your auditor, too, so everybody's aware of the bankruptcy issue.
Keep in mind that if the debtor’s chapter 13 ends up being dismissed, you can revert to the original loan terms.
Keep in mind that if the debtor’s chapter 13 ends up being dismissed, you can revert to the original loan terms.
What if an unsecured debt is discharged, and a debtor wants to make a payment after the discharge?
I would put it in the voluntary payment bucket, so they do not have any personal liability. Their personal liability has been discharged. If they ask about their payment amount or balance, you cannot tell them because, technically, no payment is due. You can accept payments (and track them!) You could track it on the side. You can get in trouble if you tell them there’s a balance.
What if the trustee isn’t specifying what is designated pre- or post-payments?
You can see a breakdown on the trustee’s website. Your attorney can also obtain the trustee ledger. You can contact the chapter 13 trustee office, and they’re usually friendly and helpful here in northeast Ohio.
Our team is constantly monitoring this topic and more. If you have any questions about this webinar or want to learn about our bankruptcy recovery solutions, contact Milos or Garry at any time.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
