About 1-2 months after your 341 or confirmation hearing in the Western District of Kentucky your attorney must file a “Schedule of Allowed Claims”. However, we always require clients to look over claims together with us in advance of this filing. Unless you look over the claims with your attorney, it’s just a list of claims. So, don’t leave out this important step. Courts presume a claim is accurate unless you object to it. However, the problem is you may be paying for claims you don’t owe.
Why and How to Review a Chapter 13 Schedule of Allowed Claims
Worse you may be reviving dead or zombie debts into enforceable debts. Recently the Supreme Court found it was OK for debt buyers to file proofs of claims for debts that are too old to be collected on. Debt buyers intentionally file millions of claims that violate the statute of limitations. They also file claims for debts that were discharged in a prior bankruptcy or which belong to someone else. If they don’t get caught you pay them.
⎆ Review a Chapter 13 Schedule of Allowed Claims.
In a 2017 case Midland Funding, L.L.C. v. Johnson, ___ U.S. ___, 2017 WL 2039159 decided (May 15, 2017), the Supreme Court. The court voted 5-3 to allow debt buyers filing a proof of claim in bankruptcy court on debts that violate the Statute of Limitations. Filing a claim for a debt that is too old to sue does not violate the Fair Debt Collection Practices Act (“FDCPA”). Nor does it violate other protections of the court. But you can object and permanently knock out these debts.
Your petition should include the following:
- Object to the debt by listing it as past the statute of limitations.
- Review a Chapter 13 Schedule of allowed claims with your attorney and file an objection to paying the debt if the lender files a claim.
- Interestingly, three of the Supreme Court judges admitted filing time-barred debts in bankruptcy is “unfair” and “unconscionable.”
- Servicers or debt buyers file improper claims in bankruptcy court in hopes “no one notices they are too old to be enforceable.”
⎆ Debt buyers file false claims because it’s profitable.
Servicers and debt buyers file millions of cases every year in state court. As a result, most collection attorneys do not review the complaint and supporting documents. The amounts are often overstated. They often have no evidence to support the debt or proof the plaintiff owns the debt. These debts are bought and sent electronically from one buyer to another with no verification the accounting is accurate. Debt buyers engage in the same practices in bankruptcy court.
To violate the FDCPA and rules of the court, the claim must be “false,” “deceptive,” or “misleading”. Because the Trustee normally reviews these claims and the debtor doesn’t, the court ruling that filing is sloppy, unenforceable, or contains fraudulent claims is acceptable. The statute of limitations and having bankrupted the debt is an “affirmative defense” 11 U.S.C § 502(b), but you have to assert it or you lose it.
In the Western District of Kentucky, the Trustee does not review a Chapter 13 schedule of allowed claims for time-barred, previously bankrupted, and other improper claims. Including claims means you lose money by paying these claims. Normally paying extra claims only lowers the amount paid to other creditors who have proper claims. But in 100% plans, if it is allowed, the debtor must repay these claims. However, the bankruptcy courts are split as to whether you can sue under the FDCPA in bankruptcy court. Often, you have to bring FDCPA lawsuits in state or federal court. But, the only defense debtors have in many bankruptcy courts is to object to claims.
⎆ Reviving zombie debts by making a payment.
Filing a Bankruptcy normally just stops the clock for the statute of limitations while you are in bankruptcy. But in Kentucky making a payment also revives/renews the statute of limitations making the debt once again enforceable. Any admission you owe the debt may also revive the debt and start the debt over again. Do you remember talking to the debt collector on a recorded line? You didn’t really think it was for “quality assurance” did you? It was often to get your admission you owe the debt.
What happened after the Midland decision is debtors must carefully review claims or these dead or zombie debts will automatically be allowed. Not reviewing your claims makes filing false bankruptcy claims profitable. The attorney does not get paid for reviewing claims. It wastes office staff time so claims are not reviewed with clients. Instead, attorneys often only copy filed claims and have no idea whether the claims are proper or not. If the debtor does not ask to review the claims, these claims are simply paid.
⎆ Two problems caused by making payments on zombie debt.
This can later cause two problems. First, the debtor might not get the benefits of a 100% or 70% plan. That’s because, in a 100% plan, you don’t have to file an annual budget or turnover tax refunds. In a 70% plan, you are presumed to be filing in good faith and your plan is not reviewed by the court. Also, including extra claims waters down the percentage paid to the unsecured and may require you to increase the plan payment to pay 100%.
Secondly, paying these debts through the plan may bring them back to life again and make them collectible again for another 15 years in Kentucky. This is something a debtor doesn’t want to do. For these reasons, you must first review your claims with your attorney. Here is a complete checklist for Debtors for Chapter 13 in Western Kentucky.
Resources for Bankruptcy
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.