Tuesday, May 3, 2011

What should you do with a Judgment when a debtor files for Bankruptcy?

Last week Terry Ehrlich and Jean Arnold conducted a seminar on Seeking and Collecting a Judgment.  The following is an excerpt from Jean Arnold's seminar materials answering the question: 
What should you do with a Judgment when a debtor files for Bankruptcy?  The creditor should immediately determine the relevant time frames to take action in the bankruptcy.  The key determinations are:
A.                 First meeting of creditors.  Under Chapter 7 the first meeting of creditors shall be held not less than 20 nor more than 40 days after the Court enters the order for relief.  In Chapter 13 cases the first meeting of creditors shall be held not less than 20 nor more than 50 days after the order for relief enters.  The creditor should attend this meeting, after reviewing the schedules, and ask questions of the debtor who is under oath.  This limited questioning can alert the Trustee to issues in the bankruptcy and allow the creditor to gather important information as to the debtor’s intentions.    
B.                 Deadline to file proof of claim.  90 days after the first date set for the meeting of creditors under 11 U.S.C. § 341(a).  See Bankruptcy Rule 3002(c).  This deadline will be shown on the bankruptcy notice.  In case under Chapter 7 the notice will often state it is a “no asset” case and tell the creditor not to file a claim until directed by the Court.  The creditor will then need to pay particular attention to the bankruptcy proceedings and watch for any further notices of “bar date” for filing claims coming from the U.S. Trustee’s office.
C.                 Deadline to object to discharge of debt.  A complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).  A new time period for filing complaints objecting to discharge commences when a Chapter 11 or Chapter 13 case is converted to a Chapter 7 case.  No new time period is available, however, if a case started in Chapter 7, and the applicable period expired in that original chapter, and the case thereafter was converted to Chapter 11 or 13 and then reconverted to Chapter 7.  See  Bankruptcy Rule 1019(3) and discussion in 10 Colo. Prac., Creditors' Remedies - Debtors' Relief § 9.32 (2010).   
D.                Determination of whether to seek relief from stay. If the creditor has a security interest in property of the debtor, the creditor must determine whether there is equity in the property.  If there is not or the creditor is not adequately protected due to declining value or misuse of the secured property, then the creditor may seek relief from stay.