My wife and I made the decision to open a residential cleaning business. We needed enough money to get the equipment, do a bit of advertising and get the licensing and insurance to protect ourselves and our customers. For about two years, things went very well, but then, things took a terrible spin for the worst after we hired a few employees to help us with the workload. Since then, we have gone bankrupt and have gone back to working full time jobs. If you are struggling with your business and considering bankruptcy, this blog can give you some answers to the many questions that you have.
In a chapter 13 bankruptcy case, the debtor makes payments to the court who then distributes that money to the creditors the individual owes. To get paid, however, creditors must file a proof of claim with the court. If they don't, they won't receive any cash. While this may seem like it will benefit the debtor in some way, here's why it could actually cause problems in the future and what to do to fix the issue before it does.
You May Still Owe the Money at the End
At the conclusion of your chapter 13 bankruptcy case, most of your debts will be discharged, ending your obligation to pay them. Thus, a creditor who doesn't file a proof of claim in time may never see a dime from your plan and be forever barred from attempting to collect the debt after your case ends.
However, this is only true for creditors holding unsecured debts, such as credit cards and medical expenses. Debts that are secured with collateral (e.g. house, car) and non-dischargeable debts (e.g. student loans, some tax obligations) typically survive the bankruptcy and may put you in a worse position financially if no payments are made to those accounts during the years your case was active.
For instance, if your mortgage lender failed to file a proof of claim and didn't get any payments on the home loan, the bank would be well within its rights to foreclose on and repossess the home. To prevent this from happening, you would have to pay all the past due payments plus any fees and interest that accumulated during that time.
Thus, before celebrating a creditor's oversight in this area, check what kind of debt it is and take appropriate action if it's one that could come back to haunt you later on.
File the Proof of Claim for the Creditor
Luckily, bankruptcy law allows debtors to step in and protect themselves when this type of situation arises. In particular, if a creditor fails to file a proof of claim for its debt, you can file one on its behalf. You have to wait until the deadline to file passes, which is usually 90 days after the meeting of creditors. If creditors haven't submitted the required forms by that time, you'll have 30 days after the time limit expires to do it for them.
For more information about this issue or help with your bankruptcy case, contact a bankruptcy attorney.
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