A creditor's goal is to get you to pay off the debt you owe to the company. So when you file for chapter 13 bankruptcy, you can be sure the creditor will go over your petition with a fine-toothed comb looking for any mistakes it can use to get more money and/or stop the proceedings altogether. Here are three things that may trigger an objection from a creditor when you file chapter 13 bankruptcy and what to do about them.
There's a Mistake in the Amount Reported
A common objection you may get from one or more of your creditors is that the amount you reported on your bankruptcy form is incorrect, especially if the difference is significant. For instance, the bank thinks you own it $1,000 but you only write $500 on your petition. The bank is going to object to the filing, which will provide it with an opportunity to prove its case.
The reason why creditors will go through the trouble of objecting in this case is because the amount on the petition directly impacts how much of the debt will be paid. Creditors with secured claims are generally paid in full (e.g. mortgage bank), but those with unsecured claim are only paid a portion of the debt determined by the amount of money you have left over from paying secured and priority claims. If you only have enough to pay 20 percent of the unsecured debt, for instance, that's all the creditor will receive.
Thus, the creditor will fight tooth and nail to get every penny it's entitled to. If you want to avoid having your chapter 13 bankruptcy held up by creditor objections, be as accurate as you can be when reporting the amount of the debt on your forms. Contact the creditor to obtain your current balance when necessary.
The Debt Type Is Misreported
Another reason a creditor may object your plan is you misreport the type of debt you have with the company. As noted previously, priority and secured debt gets paid first and in full whereas unsecured debt gets any money left over. Any account balances left on your unsecured debt is discharged when your bankruptcy ends. So creditors will want to make sure their debts are being reported correctly, because it can mean the difference between getting paid and getting nothing.
If you list a secured creditor as unsecured, the creditor will object. If the company can successfully prove its case, the court will make the necessary changes, which can have a significant impact on your monthly payments. For instance, if you accidentally list your car note as an unsecured debt, the court will move it into the secured pile and you will be required to make a bigger payment to the car company than originally calculated.
This bigger payment may result in your bankruptcy case lasting longer or your petition being rejected because the payment pushed your case beyond acceptable boundaries (e.g. it will take more than the maximum 60 months now to fully pay off your plan).
Thus, it's important to put accounts in the right areas on your paperwork. If you're not sure where an account should go, consult with an attorney or professional petition preparer advice and assistance.
It Appears Fraud Occurred
A third reason your petition may receive an objection is it appears you are committing fraud. This is more likely to occur in cases where you use your credit accounts (or open new ones) shortly before filing a petition. However, a creditor may also raise this objection if it appears you are purposefully lying on your petition or trying to hide assets.
To prevail, though, the creditor must prove you intended to defraud it, which can be challenging to do. Thus, the creditor may only come forward if it has solid proof of your actions. Regardless, to avoid this problem, it's a good idea to stop using your credit accounts in the months leading up to you filing your petition and have your papers inspected by a professional to ensure they're accurate.
For help with this or other matters related to filing bankruptcy, contact an attorney.