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It may make sense to file a proof of claim on behalf of a creditor who has not filed one on its own in your bankruptcy.

Most creditors will file a proof of claim — a form that provides information about your debt — in order to be paid if you file for bankruptcy. A creditor may fail to file a proof of claim on occasion. In rare cases, you may want to file a proof of claim on behalf of that creditor.

It may make sense to file a proof of claim on behalf of a creditor who has not filed one on its own in your bankruptcy.

Most creditors will file a proof of claim — a form that provides information about your debt — in order to be paid if you file for bankruptcy. A creditor may fail to file a proof of claim on occasion. In rare cases, you may want to file a proof of claim on behalf of that creditor.

What Is a Claim Proof?

Whether or not your creditors receive anything in your bankruptcy case is determined by a number of factors, including:

• the nature of the creditor’s claim
• whether or not you own non-exempt real estate
• whether you have a surplus of cash, and
• whether you file for bankruptcy under Chapter 7 or Chapter 13.

If a creditor wants to be paid in bankruptcy, they must file a proof of claim with the court. The proof of claim gives the court information about your debt and usually includes documentation to back up the creditor’s claim.

Creditors will, in most cases, file their own proofs of claim. If a creditor fails to file a proof of claim, you can file one on their behalf if you want that creditor to be paid in your bankruptcy.

Why Would a Creditor Refuse to Submit a Proof of Claim?

Creditors file proofs of claim in bankruptcy to receive a share of any possible distributions made by the bankruptcy trustee in your case. Even if a creditor has a valid claim, it will not be paid unless it files a proof of claim with the court. Creditors, on the other hand, frequently fail to file proofs of claim in bankruptcy.

In your bankruptcy, a creditor may refuse to file a proof of claim if:

• You have a Chapter 7 bankruptcy with no assets (meaning you don’t have any property that the bankruptcy trustee can distribute to your creditors, so they won’t be paid).
• You owe the creditor a small amount of money, or
• The creditor does not follow the court’s instructions or makes an error in some other way.
• You Might File a Proof of Claim for a Creditor for a Few Reasons

While it may seem strange to file claims on behalf of creditors in your own bankruptcy case, it can sometimes be beneficial. We’ll go over when it’s a good idea to file a proof of claim for a creditor in the sections below.

Certain debts do not disappear just because you file for bankruptcy. These are known as nondischargeable debts, and they include alimony, child support, certain taxes, and student loans. You want your nondischargeable debts to be paid before your other general unsecured creditors (such as credit card companies) in your bankruptcy because you are still responsible for them after your case is closed.

This means that whether you have nonexempt assets to distribute to creditors in Chapter 7 bankruptcy or are paying off a portion of your debts in Chapter 13 bankruptcy, you should make sure that any creditors with nondischargeable debts file proofs of claim with the court. If they don’t, it’s in your best interest to file a claim on their behalf so that they can get a piece of the settlement money.

You need to make up for unpaid secured debt payments.

You can file for Chapter 13 bankruptcy to catch up on your arrears and save your home if you are behind on your mortgage, car loan, or other secured debts. If you want to use your bankruptcy to repay your missed loan payments, make sure the creditors you want to pay (like your mortgage or car lender) file proofs of claim with the court.

If they don’t file proofs of claim, the trustee may ask the court to allow the trustee to pay your unsecured creditors instead. This means that if a secured creditor you intend to pay fails to file a claim, you may be required to do so on their behalf.

When Do You Have to File Creditor Proofs of Claim?

The majority of creditors must file proofs of claim with the court within 90 days of your creditors’ meeting (government entities have 180 days from when you filed your case). Before filing a claim on behalf of a creditor, you must wait until the creditor’s claim deadline has passed. You have 30 days after the deadline to file the claim on behalf of the creditor.

When confronted with foreclosure, many debtors file for bankruptcy—and with reason. By filing for bankruptcy, a debtor can obtain what is known as an automatic stay. During the bankruptcy case, the stay serves as an injunction, or bar, prohibiting creditors from attempting to collect debts or enforce liens.

In some instances, a debtor is not entitled to the automatic stay, or the lender successfully petitions the court to lift the automatic stay. Whether you file for Chapter 7 or Chapter 13 bankruptcy determines whether the foreclosure process is halted temporarily or permanently.

The Process of Foreclosure

When you purchase a home, you agree that if you fall behind on your monthly payments (default on the loan), the lender has the right to sell the property at auction and apply the proceeds to your loan balance. Prior to the house being auctioned, the lender must follow the foreclosure procedures outlined in federal and state law.

After the federal and state waiting periods for homeowners to catch up on arrearages or apply for a loss mitigation program (such as a mortgage modification) have expired, the lender may proceed with foreclosure in accordance with state foreclosure laws.

A lender may foreclose in one of two ways, depending on state law:

Foreclosure through the courts. All states permit lenders to foreclose through a “judicial” process that begins with the bank filing a court lawsuit. The homeowner has the option of responding to and defending the suit. The case will be litigated, and if the bank prevails, the court will order the home sold at auction.

Foreclosure without judicial intervention. Certain states permit lenders to use a streamlined “nonjudicial” foreclosure procedure that entails following state-mandated steps. The bank is frequently required to allow the homeowner time to bring the account current. Additionally, the lender must notify the owner of the sale date and, in some cases, publish the sale date via newspaper advertisement or public posting. Following completion of the steps, the lender may sell the home at auction without first obtaining court approval.

As long as the foreclosure sale has not occurred, filing for bankruptcy will halt either type of foreclosure process.

When the Automatic Stay Is Inapplicable

The stay is automatically triggered upon filing for Chapter 7 or Chapter 13 bankruptcy. There is no additional action required to bring the automatic stay into effect. (For more information, see Bankruptcy’s Automatic Stay.)

There are, however, two exceptions to the automatic stay that prohibit debtors from interfering with a creditor’s right to foreclose by filing and dismissing successive bankruptcy cases. The following are the rules.

Within the last year, one previous bankruptcy case was dismissed. The automatic stay is only in effect for 30 days following your bankruptcy filing.

Two or more previously dismissed bankruptcy cases within the last year. The automatic stay is not invoked at all.

Debtors who qualify for the automatic stay exceptions may petition the bankruptcy court to impose the automatic stay and halt the foreclosure. To prevail, the debtor must establish beyond a reasonable doubt (a relatively high standard) that the previous bankruptcy cases were not filed in bad faith.

The automatic stay exceptions for repeat or serial filers do not apply if you initially filed for bankruptcy under Chapter 7 but then converted to Chapter 13 after the means test determined that your income was too high to qualify for Chapter 7.

How the Automatic Stay Can Aid in Foreclosure Prevention

The automatic stay extends the time period available to attempt to resolve a pending foreclosure. The options for dealing with an impending foreclosure are largely dependent on whether you file for Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy under Chapter 7

Chapter 7 bankruptcy does not include a mechanism to assist you in catching up on payments and retaining your home. Therefore, if you’re falling behind and wish to remain in your home, this is probably not the chapter for you. However, there are additional advantages.

When you file for bankruptcy under Chapter 7, all of your property becomes part of the bankruptcy estate. The Chapter 7 trustee appointed to your case will liquidate (sell) your assets and make any necessary payments to creditors. The automatic stay allows the trustee to sell property that would have been foreclosed on otherwise if there is a potential benefit to the estate (the property must have sufficient equity).

Depending on your circumstances, the stay may also be beneficial to you:

If the property is your primary residence, the stay may provide you with additional time to secure alternative housing or negotiate a loan modification with the lender.

You may be entitled to a portion of the proceeds if the trustee sells the property for a sufficient price. After resolving any mortgages or other valid liens, the trustee must reimburse you for your homestead exemption before resolving any other creditors. Additionally, you are entitled to excess proceeds if the property sells for a price sufficient to pay off all of your creditors.

Bankruptcy under Chapter 13

The automatic stay in Chapter 13 bankruptcy may provide you with time to catch up on any mortgage arrears and remain in your home. You’ll repay debts (some in full, some in part) over a three- to five-year period—including delinquent mortgage payments.

To make Chapter 13 restructuring effective, you must have sufficient income to cover current mortgage payments and make payments on arrearages that accrued prior to filing bankruptcy. Once the court approves a Chapter 13 repayment plan that includes mortgage arrears, the lender is prohibited from foreclosing. However, if you fall behind on mortgage or arrearage payments following the approval of your plan, the lender will be able to proceed with the foreclosure.

Removal of the Automatic Stay

A lender may file a motion with the bankruptcy court requesting that the automatic stay be lifted (terminated) and the lender be permitted to proceed with foreclosure. You have the right to respond, and if you do, the bankruptcy court will hold a hearing before deciding whether to lift the stay. If the court lifts the stay, the lender may resume foreclosure efforts, unless the bankruptcy court orders otherwise.

When you file for bankruptcy, you must disclose your debts, referred to as “creditor claims,” on official bankruptcy paperwork. However, as simple as that may sound, categorizing claims can be a bit tricky.

To begin, you’ll classify the debt as either secured or unsecured. Then, you’ll categorize the unsecured claims as priority or nonpriority. This article will teach you how to properly label each debt and determine what will happen to it if you file for bankruptcy.

Incorporating Creditor Claims into Your Bankruptcy Documents

After you complete and file official bankruptcy forms, your bankruptcy case is initiated. The cover document, referred to as the petition, is where you will disclose personal information about yourself, such as your name, address, and the bankruptcy chapter for which you are filing. On schedules, you’ll detail your income, creditor claims (debts), and assets.

Creditor claims will be listed on one of the following schedules:

Schedule D: Creditors With Property-Backed Claims Secured claims, such as a mortgage, car payment, or other collateralized obligation, are included here.

Creditors With Unsecured Claims Schedule E/F This form is for listing unsecured claims. Part 1 is reserved for priority unsecured claims, such as unpaid taxes and child support. In Part 2, you’ll detail your non-priority unsecured claims (all remaining debts).

How Is a Secured Claim Defined?

In bankruptcy, a creditor with a secured claim has two things: a debt that you owe and a lien (also known as a security interest) on property that you own. If you default on your contract obligations, the lien enables the lender to seize the property, sell it at auction, and apply the proceeds to the account balance. For example, a mortgage lender with a lien may foreclose on real estate and a vehicle loan lender with a lien may repossess a vehicle.

Secured claims are frequently made voluntarily. For example, if you agree to pledge an asset as collateral for the loan (which is frequently done when purchasing a home or car), you voluntarily grant the creditor a security interest in your property.

Creditors may also place an unauthorized lien on your property without your consent. For instance, a credit card company may obtain an involuntary lien following a successful collection lawsuit. If you fall behind on your taxes, statutory law empowers the IRS to place a tax lien on your property.

Typical secured bankruptcy claims include the following:

• mortgages
• automobile loans
• unpaid property taxes, and
• other liens on real estate.
• You’ll list all secured claims on Schedule D: Creditors With Property-Backed Claims.

What Happens to Secured Claims When a Debtor Files for Bankruptcy?

Creditors who have a secured claim are in a favorable position. A bankruptcy discharge (the court order that eliminates debt) does not eliminate liens on your property. It merely removes your obligation to repay the debt.

Due to the continued existence of the lien, the creditor retains the right to foreclose or repossess the property if the loan is not repaid. Therefore, if you file for bankruptcy and wish to retain property used to secure a loan, you must continue making payments to the lender until the debt is paid off.

However, if a home or car has significant equity, a Chapter 7 trustee will likely sell it. However, due to the lien, the trustee must obtain sufficient funds to repay the loan, return any exemption amount to you (the amount of equity you are permitted to protect), and pay off creditors with the remaining funds. If there is insufficient equity to make meaningful payments to creditors, the trustee will not sell the property.

If the property you wish to retain has a significant amount of equity, a Chapter 13 case is almost always a better option. However, you must have sufficient income to make a substantial monthly payment for three to five years (you must pay the value of the nonexempt equity in the plan).

Getting Rid of Liens in Bankruptcy Certain types of property liens are dischargeable in bankruptcy. For example, you may be able to petition the court to:

• eliminate a judgment lien that interferes with your bankruptcy exemptions, or
• In Chapter 13 bankruptcy, you can eliminate an entirely unsecured junior lien on your property.

How Are Unsecured Claims Defined?

A creditor who has an unsecured claim is not entitled to a lien. Unsecured claims fall into two categories:

• Unsecured claims are given priority. These debts are not dischargeable in bankruptcy and will be paid before nonpriority unsecured claims if funds are available.
• Unsecured claims with no priority. The majority of these debts are dischargeable in bankruptcy (except student loans). Priority debts must be satisfied before bankruptcy funds can be used to pay these debts.

Unsecured Non-Priority Claims

The bankruptcy discharge will eliminate the majority, but not all, nonpriority, unsecured claims. Among the most common unsecured claims that can be discharged in bankruptcy are the following:

• debt incurred through credit cards
• medical expenses, and
• unsecured loans.

Although student loans are unsecured debts, they cannot be discharged unless you can demonstrate that paying them would cause you undue hardship (which is a difficult standard to prove).

Unsecured Claims with Priority

Priority unsecured debts are non-dischargeable and are treated differently. In bankruptcy, priority creditors receive payment before other creditors.

Among the most common types of priority claims are the following:

• alimony
• support for children
• certain tax responsibilities, and
• Debts incurred as a result of personal injury or death as a result of drunk driving.

Because Chapter 7 bankruptcy does not allow you to discharge priority debts, you will be responsible for any balance remaining after your Chapter 7 case (the bankruptcy trustee might sell some of your property and apply the funds to the debt).

If you file Chapter 13, you must repay all priority unsecured debts in full over the course of your three- to five-year repayment plan.

Unsecured claims will be listed on Schedule E/F: Creditors With Unsecured Claims.

Occasionally, it makes sense to file a proof of claim in your bankruptcy on behalf of a creditor who has not done so independently.

When you file for bankruptcy, the majority of your creditors will file a proof of claim – a document that details your debt – in order to be paid. Occasionally, a creditor will fail to file a proof of claim. In rare instances, you may wish to file a proof of claim on behalf of that creditor. This is why.

What Is a Claim Proof?

• Whether your creditors receive anything in your bankruptcy case is contingent on a number of factors, including the following:
• the nature of the creditor’s claim
• regardless of whether you own non-exempt property
• whether you have a source of revenue available to you, and
• regardless of whether you file for bankruptcy under Chapter 7 or Chapter 13.
• If a creditor wishes to be paid in bankruptcy, he or she must file a document called a proof of claim with the court. The proof of claim informs the court about your debt and typically includes documentation substantiating the creditor’s claim.
• Creditors will typically file their own proofs of claim. However, if one of your creditors fails to file a proof of claim, you may file one on its behalf if you wish to ensure that creditor receives payment during your bankruptcy.

Why Would a Creditor Choose Not to Submit a Proof of Claim?

Creditors file proofs of claim in bankruptcy in order to receive a share of any distributions made by the bankruptcy trustee in your case. If a creditor fails to file a proof of claim with the court, even if the creditor otherwise has a valid claim, the creditor will not be paid. However, creditors frequently fail to file proofs of claim in bankruptcy.

A creditor may choose not to file a proof of claim in your bankruptcy if one of the following applies:

• You have a Chapter 7 no-asset bankruptcy (which means you do not have any property that the bankruptcy trustee can distribute to your creditors, thereby preventing them from being paid).
• You owe the creditor a pittance, or
• The creditor does not follow the court’s instructions or makes an error in any other way.

Justifications for Filing a Proof of Claim Against a Creditor

While it may seem strange to file claims on behalf of creditors in one’s own bankruptcy case, it is sometimes necessary. The following section discusses when it may be prudent to file a proof of claim on behalf of a creditor.

You Desire to Consolidate Your Nondischargeable Debts

Certain debts do not disappear simply because you file for bankruptcy. Nondischargeable debts include alimony, child support, certain taxes, and student loans. Due to the fact that you will be responsible for repaying your nondischargeable debts after your case is closed, you want to ensure that these creditors are paid before your other unsecured creditors (such as credit card companies) in your bankruptcy.

This means that regardless of whether you have nonexempt assets that will be distributed to creditors in Chapter 7 bankruptcy or are repaying a portion of your debts in Chapter 13 bankruptcy, you want to ensure that any creditors with nondischargeable debts file proofs of claim with the court. If they do not, it is in your best interest to file a claim on their behalf to ensure that they receive a portion of the proceeds in your case.

You Wish to Make Up for Late Payments on Secured Debt

If you fall behind on your mortgage, car loan, or other secured debts, you may be able to file for Chapter 13 bankruptcy in order to catch up on your payments and keep your property. If the bankruptcy is being used to repay missed loan payments, you must ensure that the creditors you wish to repay (such as your mortgage or car lender) file proofs of claim with the court.

If they fail to file proofs of claim, the trustee may seek court approval to pay off your unsecured creditors in their place. This means that if a secured creditor to whom you intend to pay fails to file its claim, you may be required to do so on their behalf.

When Are Creditors Allowed to File Proofs of Claim?

The majority of creditors must file proofs of claim with the court within 90 days of your creditors’ meeting (government entities have 180 days from when you filed your case). Prior to filing a claim on behalf of a creditor, you must wait until the creditor’s deadline for filing its own claim has expired. After the deadline has passed, you have 30 days to file the creditor’s claim on your behalf.

After you file for bankruptcy, the automatic stay offers potent legal protection against bill collectors.

When you file for bankruptcy, a court order called the automatic stay immediately stops most civil lawsuits filed against you and most collection actions being taken against your property by a creditor, collection agency, or government entity. The automatic stay may provide a compelling reason to file for bankruptcy. Bankruptcy can temporarily—and sometimes permanently—help if you’re at risk of being evicted, being foreclosed on, or losing such essential resources as utility services or a portion of your paycheck through wage garnishment.

What the Automatic Stay Can Prevent (at Least Temporarily)

Here’s how the automatic stay affects some common emergencies:

• Utility disconnections. If you’re behind on a utility bill and the company is threatening to disconnect your water, electric, gas, or telephone service, the automatic stay will prevent the disconnection for at least 20 days. Although the amount of a utility bill itself rarely justifies a bankruptcy filing, it might make sense to file if you have other debt that you can discharge. Be aware that the utility company will likely be able to require that you pay a deposit to ensure future payment.
• Foreclosure. If your home is being foreclosed on, the automatic stay will stop the proceedings. What will happen next, however, will depend on the bankruptcy chapter that you file. For instance, if you want to keep your home, Chapter 13 bankruptcy is usually a better remedy because you can catch up back payments in a three- to five-year repayment plan. By contrast, Chapter 7 bankruptcy doesn’t have a mechanism that will allow you to retain your home if you’re behind, so the relief provided by the stay will be temporary. (Learn more in Bankruptcy’s Automatic Stay and Foreclosure).
• Eviction. If you’re being evicted from your home, the automatic stay might provide some help, but it’s usually temporary. If your landlord already has a judgment of possession against you when you file, the automatic stay won’t affect these eviction proceedings; the landlord can continue just as if you hadn’t filed for bankruptcy. And if the landlord alleges that you’ve been endangering the property or using controlled substances there, the automatic stay won’t do you much good, either. In other cases, the automatic stay might buy you a few days or weeks, but the landlord will probably ask the court to lift the stay and allow the eviction and the court will probably agree to do so. (Learn more about Evictions and the Automatic Stay During Bankruptcy).
• Collection of overpayment of public benefits. If you receive public benefits and were overpaid, normally the agency is entitled to collect the overpayment out of your future checks, or, if you no longer receive benefits, from you directly. The automatic stay prevents this collection. However, if you become ineligible for benefits, the automatic stay doesn’t prevent the agency from denying or terminating benefits for that reason.
• Multiple wage garnishments. Filing for bankruptcy stops most garnishments dead in their tracks. Not only will you take home a full salary, but you also will be able to discharge qualifying debt—such as credit card balances and personal loans—in bankruptcy. Be aware that commonly garnished debts, such as for ongoing child support and alimony, won’t get discharged. What will happen to overdue support payments and back taxes will depend on the bankruptcy chapter that you file. (You’ll likely remain responsible after a Chapter 7 bankruptcy and pay off the debt entirely in a Chapter 13 bankruptcy.)

What the Automatic Stay Cannot Prevent

In a few instances, the automatic stay won’t help you.

• Certain tax proceedings. The IRS can still audit you, issue a tax deficiency notice, demand a tax return (which often leads to an audit), issue a tax assessment, or demand payment of such an assessment. However, the automatic stay does temporarily stop the IRS from issuing a tax lien or seizing your property or income. Whether you’ll be responsible for the tax after your bankruptcy will depend on whether the tax gets discharged in Chapter 7 bankruptcy or whether you pay the debt in Chapter 13 bankruptcy. (Learn more in Will Bankruptcy Stop the IRS From Collecting Tax Debts?)
• Support actions. A lawsuit against you seeking to establish paternity or to establish, modify, or collect child support or alimony isn’t stopped by your filing for bankruptcy.
• Criminal proceedings. A criminal proceeding won’t be stopped by the automatic stay. For instance, if you were convicted of writing a bad check, sentenced to community service, and ordered to pay a fine, your obligation to do community service won’t be stopped by your filing for bankruptcy—and if the fine was assessed as a punishment, you’ll be required to pay it, as well.
• Loans from a pension. Despite the automatic stay, money can be withheld from your income to repay a loan from certain types of pensions (including most job-related pensions and IRAs).
• Multiple filings. If you had a bankruptcy case pending during the previous year, then the stay will automatically terminate after 30 days unless you, the trustee, the U.S. Trustee, or a creditor asks for the stay to continue and proves that the current case was filed in good faith. If a creditor had a motion to lift the stay pending during the previous case, the court will presume that you acted in bad faith, and you’ll have to overcome this presumption to get the protection of the stay in your current case.

How Creditors Can Resume Collections: Filing a Motion to Lift the Automatic Stay

Usually, a creditor can get around the automatic stay by asking the bankruptcy court to remove (“lift”) the stay. To avoid fines and penalties, the creditor must file a motion asking for permission to continue with collection efforts.

Motions to lift the automatic stay commonly involve the following:

• a foreclosure action
• a landlord/tenant dispute, or
• a lawsuit in another court.

The bankruptcy court won’t rubber stamp the creditor’s request, however. The creditor must show that keeping the automatic stay in place will cause the creditor to lose money and provide no financial benefit or harm to other creditors.

For instance, suppose that you file for bankruptcy the day before your house is to be sold in foreclosure and the facts are as follows:

• You don’t have any equity in the house.
• You can’t catch up and pay your mortgage arrears.

The foreclosing creditor is apt to go to court soon after you file for bankruptcy and ask for permission to proceed with the foreclosure. The basis for the motion will be that when taking out the mortgage, you put up a home as collateral, thereby giving the lender a lien that allows it to recover the home through foreclosure if you, the borrower, defaults on the agreement, such as by failing to make timely payments. With this type of debt—known as a secured debt—the house guarantees payment and in most cases, gives the lender the right to the house above all other creditors.

After the creditor files the motion, the debtor (or potentially, any other party with interest in the matter) can oppose the motion at a hearing in front of a judge. If the creditor makes its case, the judge will grant the request and allow the lender to move forward.

In the example above, the court will likely grant the request because:

• You have no way of keeping the property.
• There isn’t any equity in the property that can be used to pay other creditors.
• The lien on the property gives the lender the right to recover the home, sell it at auction, and use the proceeds to pay toward the outstanding mortgage.
• The longer the bankruptcy court prevents the lender from exercising the lien rights, the more money the creditor will stand to lose—with no gain to any other creditor.

By contrast, if there was enough equity in the house to pay for future payments owed to the lender—sometimes called an “equity cushion”—then the creditor would not stand to lose money, and the court might deny the motion.

But a creditor might file a motion to lift the automatic stay for another reason, too. For instance, suppose that a creditor who was suing the debtor in another court at the time of the bankruptcy filing—such as a state court—asks the bankruptcy court for permission to continue pursuing the lawsuit in that forum. If the creditor can show that the trial outcome (judgment) will be nondischargeable (will survive the bankruptcy) or doesn’t involve a matter normally resolved in bankruptcy court (such as an enforcement action) and the outcome won’t affect the rights of other creditors, the court will likely grant the motion—especially if the trial has been ongoing for some time. An example would be an enforcement case brought by a government entity to enforce an antipollution statute.

Because litigation can be complicated, if you find yourself defending a motion to lift the automatic stay, you should seek advice from an attorney as soon as possible.

Most people view of bankruptcy as a simple procedure that, unlike many court proceedings, does not involve a third party. You can file paperwork and get a discharge (a court order that eliminates eligible debt) without fear of someone objecting to your case.

That is how it works in the great majority of cases. Although every creditor in a bankruptcy case has the right to oppose the discharge, few do so, partly because they don’t always have grounds to do so. However, individuals concerned (known as “interested parties,” such as the debtor, creditors, and trustee) still have the option of engaging in full-fledged litigation. You’ll learn how normal bankruptcy litigation works in this post.

How the Bankruptcy Court Distinguishes the Different Types of Litigation

The bankruptcy rules discriminate between different types of litigation based on how they relate to the bankruptcy. The distinction is significant because it impacts the bankruptcy judge’s jurisdiction and decision-making authority.

It’s all about the fundamentals. Litigation over a debtor’s right to maintain property covered by a bankruptcy exemption, for example, is specific to bankruptcy cases. The bankruptcy court has the last say on these matters (subject to appeals).

Non-core issues are important. These issues are relevant to a bankruptcy case, but they could have arisen between the parties even if a bankruptcy case had not been filed. Contract disputes and tax litigation are two examples. In a non-core matter, a bankruptcy judge’s authority or jurisdiction is restricted to making a referral to the federal district court (of which the bankruptcy court is a part) unless all parties agree to give the bankruptcy judge final authority.

Although all bankruptcy disputes are serious concerns, some are more complicated than others and necessitate the use of unique litigation rules.

Adversaries. Some bankruptcy litigation must be filed as a separate case known as an adversary process. These cases are linked to the main case, but they have their own case number and follow a different set of regulations than the main case. They usually take the traditional plaintiff vs. defendant format and proceed in the same way as previous trials.

Controversial issues. These are issues that normally do not escalate to full-fledged litigation (though they can) and often deal with a specific issue in the bankruptcy case. Objections to proof of claims (discussed further below), objections to Chapter 11 or Chapter 13 plans, and motions to lift the automatic stay are all examples.

In a bankruptcy case, not all of the litigation stems from the bankruptcy itself. Almost any lawsuit in which a debtor is involved can be brought in bankruptcy court, especially if it involves the debtor’s money or property. Depending on the nature of the suit and its status in the nonbankruptcy court, a case pending in another court can be transferred to the bankruptcy court. If the case is not removed to bankruptcy court, the bankruptcy judge can maintain jurisdiction to have the last (or almost final) word over a state court decision.

Although there isn’t much that a bankruptcy judge won’t take on, the following issues aren’t frequently decided in bankruptcy court:

Cases involving divorce or child custody. Property divides and ownership issues, as well as responsibility for a secured obligation (a debt secured by collateral, such as a house or car), may be brought before a bankruptcy judge, however bankruptcy judges will not dissolve marriages or determine parenting rights.

Probate is important. Although a debtor’s death does not automatically conclude a bankruptcy case, the bankruptcy court typically only deals with matters of asset disposal and debt repayment. It would be unusual for the court to take on a case involving a transfer of ownership or other concerns that are typically handled by the probate court.

Personal injury is a serious concern. In most cases, bankruptcy courts will defer to state courts when it comes to determining liability (the job of deciding who is at fault in an accident). Insurance coverage cases are frequently heard in bankruptcy courts, and they are frequently asked to determine if a state court judgment was obtained owing to fraud, willful damage, or intoxication, all of which can preclude the debt from being dismissed.

Bankruptcy Litigation Types

The following are some of the most prevalent sorts of disagreements that arise in bankruptcy cases.

Debtor and Creditor Relationship

Debt dischargeability is a term used to describe the ability of a debt to be discharged Some debts are non-dischargeable (that is, they do not disappear when you file for bankruptcy). However, in other cases, the debtor or creditor must file a lawsuit inside the bankruptcy case, requesting that the court rule whether the debt will be discharged.

Discharge of all charges. If the debtor has cheated the creditor or the court, the creditor might contest the debtor’s right to the complete discharge.

Claims. On a proof of claim, debtors might contest a creditor’s right to payment (the form a creditor must submit before receiving payment).

Violations of automatic stay or discharge injunctions. A debtor can sue a creditor if the creditor tries to collect a debt while the automatic stay or discharge injunction is in effect. (A court order prohibiting a creditor from collecting following a bankruptcy filing is known as the automatic stay.)

The Debtor and the Trustee

Discharge of all charges. The trustee, like a creditor, can oppose a debtor’s right to a discharge. It frequently happens as a result of a charge of bankruptcy fraud.

Exemptions and other property issues: The trustee has the authority to challenge the debtor’s right to an exemption (a debtor can protect property that is exempt under the law). The debtor, on the other hand, has the right to oppose to the trustee’s right to seize the debtor’s exempt property.

Between the Trustee and the Creditors or Other Parties Involved

Powers of coercion wielded by the trustee. The trustee has broad authority to seize assets. The trustee, for example, can retrieve preferential payments (money paid to a certain creditor just before the bankruptcy filing) or property that was fraudulently transferred to someone else to avoid the trustee selling it.

Claims.

On a proof of claim, the trustee can contest a creditor’s right to payment.

Some or all of your previous debt may be dismissed under Chapters 7, 11, 12, and 13 of the United States Bankruptcy Code. A “discharge” is a term that refers to the act of “This means you are not personally responsible for the money and are not required to repay it. Once a debt is permanently dismissed, the creditor you owe, such as a hospital or credit card company, cannot contact you or initiate collection action against you.

Note: To get rid of credit card debt and get debt relief, most consumers will declare a Chapter 7 bankruptcy. If you’re unfamiliar with the Chapter 7 bankruptcy process, you can learn more about it and what to expect. If you file Chapter 13 bankruptcy, you will be required to repay the majority of your debts under a repayment plan. Some debts may be discharged in bankruptcy, but you may still be personally liable for others.

Chapter 7 bankruptcy frequently entails the liquidation (or sale) of assets in order to pay off previous debts. Only once you’ve finished this process will you be able to get your eligible debts forgiven. Federal and state bankruptcy exemptions shield some assets from liquidation. Many people who file for Chapter 7 bankruptcy can keep the majority of their assets. Your attorney and bankruptcy trustee will determine what you can keep, what creditor deals you can make, and what you must give up in your bankruptcy case.

The courts usually discharge debts as soon as assets are liquidated. This occurs around four months after you first apply for Chapter 7 bankruptcy. Keep in mind that you must attend debt management education classes between filing and receiving your discharge, or the judge may deny your debt discharge.

Debts that can’t be forgiven

There are numerous exceptions to the debts that can be discharged in Chapter 7 bankruptcy. For a thorough examination of your individual debts, you should speak with an experienced attorney.

The following are examples of debts that cannot generally be discharged:

• Child support and alimony
• Several tax debts
• Loans for students
• Debts related to education
• Loans for individuals
• Debts owing as a result of a personal injury case
• Debts owed in connection with certain criminal restitution orders

According to state and federal law, these debts must be repaid.

Stop your creditors from seizing your property by using reaffirmation.

Even after a discharge, certain creditors may be able to preserve their claims on your property. This can happen in a number of ways, one of which is through a “lien.” A lien can be used by a creditor to obtain payment or reclaim property.

Let’s imagine you have some valuable secured property, such as your car. A lien may be used by your creditor to reaffirm the obligation. This “reaffirmation” is important “occurs if both you and the creditor agree:

This debt will remain your responsibility.

You will repay a debt in part or in whole.

Even if the debt would be discharged in bankruptcy, you continue to pay.

As long as you keep paying the loan, the creditor will not take your property.

Prior to the entry of a discharged debt order, reaffirmation is required. If you wish to keep a car or other property, you should talk to your creditor as soon as possible. Your attorney may take care of this for you and try to work out a reasonable payment plan.

Possessions that may be taken prior to a discharge

Bankruptcy is meant to help you get out of debt, so removing all of your assets would be counterproductive, as you’d have to repurchase a car or other stuff.

Property deemed vital for modern life may be excluded from creditors’ repossession. However, you may need to petition a judge to have them stopped.

The following are some instances of property that a creditor can try to reclaim:

• A second car or a motor vehicle
• A vacation home or a second residence
• Expensive attire
• Furniture for the home
• Jewelry
• Tools that you utilize at work
• Instruments of music (unless you can prove you are a professional musician)
• Cash, bank accounts, stocks, bonds, and other assets are all available options.
• Pensions
• A percentage of your home’s equity
• A fraction of unpaid pay that has been earned.
• Benefits from the government that have accrued in a bank account
• Personal injury damages granted
• Heirlooms from the family

While this list may appear frightening, keep in mind that creditors may attempt to seize these items, but they are unlikely to succeed. Because it is necessary for business or daily living, much of this property is covered under your state’s exemptions or wildcard exemptions.

A notice will be sent to your creditors stating that your debts have been dismissed. If they don’t agree with the discharge, they might try to reaffirm these items or sue you for debt.

Things are considered finished once the debt is discharged. You cannot be sued, have your property taken away, or be harassed by a creditor.

How to Get a Debt Forgiven

Bankruptcy is a difficult decision to make, but it is sometimes required. You might begin by inquiring with an attorney about what property is prohibited from a Chapter 7 bankruptcy and what may be included. They can inform you what a creditor might be looking for and how to stop them legally and effectively.