Bankruptcy, Chapter 13

Chapter 13 bankruptcy offers debtors a flexible and versatile way to deal with debts, especially when they may not qualify for chapter 7 bankruptcy, or are attempting to obtain a result not available in chapter 7 cases.  For sure, there may be bumps in the road, especially when institutional creditors file documents attempting to obtain disbursements from curious debts.  Often, savvy creditors will file claims in a chapter 13 case for debts that are no longer enforceable.  What happens, though, when the chapter 13 plan is confirmed BEFORE the time for creditors to file claims has expired?

This case comes out of the Bankruptcy Court for the District of South Carolina.  In this case, the joint debtors had filed a chapter 13 case in June 2015, along with a proposed chapter 13 payment plan in early July.  An amended plan was filed in early August 2015, and that plan was confirmed on August 20, 2015.  The deadline for creditors to file proofs of claim in this case was October 26, 2015.

A collection company creditor had filed a proof of claim on July 8, 2015, before the chapter 13 plan was confirmed, and well before the deadline to file claims.  In this claim, the creditor references a debt that it had obtained via assignment back in 2007, and that the last payment made on that debt was back in 2005.  The debtors filed an objection to this claim on August 27, 2015, arguing that the statute of limitations to collect this debt had expired and that the claim, thus, is unenforceable.  The creditor responded that the time to object to the claim was pre-confirmation, and since that did not occur, the confirmed plan precludes the debtors from now objecting to the claim.

Ultimately, the court ruled in favor of the debtors.  The court found that the plan filed in this case contained a “reservation of rights” to object to claims filed.  Although this reservation of rights did not have a time limitation, the court found that, in the plan, it was specific enough as to what claims it referred to, it was practical, and it made sense in terms of the timing of how chapter 13 cases work (where the deadline for claim filing is often AFTER the plan has been confirmed).  In re Harling, 15-3369-DD (Bankr. S. C., Nov. 24, 2015).

The takeaway from this case is that the administration of a chapter 13 case, for both debtors and attorneys, can be muddled in a lot of small, annoying battles.  For instance, in this case, the creditor filed a claim that it couldn’t enforce any longer.  The debtors, if they don’t object, would have to pay that claim in their case.  The attorney is (often) stuck in this place where the debtors want the attorney to object and go to hearings, but don’t want to pay for the time and work involved in objecting.  Taking steps on the front end, as the debtors did here, with protective language in their plan, at least provided them with the opportunity to do battle with the creditor.

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