Why review a Chapter 13 Schedule of Allowed Claims?
About 1-2 months after your 341 or confirmation hearing in the Western District of Kentucky your attorney is required to file a “Schedule of Allowed Claims”. We always request a client to look over claims with us. Unless you look over the claims with your attorney, this will just be a list of filed claims. Courts presume a claim is accurate unless you object to it. The problem is you may be paying for claims you don’t owe. 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 which are too old to be collected on. Debt buyers intentionally file millions of claims that violate the statute of limitations, 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, voted 5-3 to allow a debt buyer 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 on does not violate the Fair Debt Collection Practices Act (“FDCPA”) or other protections of the court. But you can object and permanently knock out these debts. Your petition should
- list the debts as past the statute of limitation objecting to it and
- then review your Chapter 13 Schedule of allowed claims with your attorney and file an objection to paying the debt if a claim is filed.
Debt buyers file millions of cases every year in state court. 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 ruled filing sloppy, unenforceable or fraudulent claims was acceptable. The statute of limitations and having bankrupted the debt is an “affirmative defense” 11 U.S.C § 502(b) you have to assert it or you lose it.
In the Western District of Kentucky, the Trustee does not review 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 these claims if allowed must be paid.
Three of the Supreme Court judges admitted filing time-barred debts in bankruptcy is “unfair” and “unconscionable”. Debt buyers file improper claims in bankruptcy court in hopes “no one notices they are too old to be enforced.”
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. 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 owed the debt.
What has 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. Attorneys often just copy filed claims and have no idea whether the claims are proper or not. If the Debtor does not review claims these claims are just paid.
This can cause 2 problems later. First the Debtor may not get the benefits of a 100% or 70% plan. 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. Including extra claims waters down the percentage paid to the unsecureds and may require you to increase the plan payment to pay 100%.
Second paying these debts through the plan may bring them back to life again and make them collectible again for another 15 years in Kentucky. Something a debtor may not want to do. For these reasons, you may want to review your claims with your attorney.