I Received a Bankruptcy Discharge – Why am I Being Sued?

Filing for bankruptcy can be a momentous decision for many people, and it usually isn’t a decision that is made lightly. Most people don’t want to have to file for bankruptcy and have genuinely tried in earnest to reduce their debts on their own.

Once you’ve decided to move forward with a bankruptcy filing, you’re likely to feel a certain sense of relief – especially as the case progresses and everything is going as planned. After your debts have been successfully discharged by your bankruptcy court judge, all of your dischargeable debts will be erased, lifting a heavy weight off your shoulders.

After a debtor receives a bankruptcy discharge, every creditor listed on their bankruptcy paperwork will receive notification of the bankruptcy. Creditors are no longer allowed to contact you to collect on debts that have been discharged. Just knowing that those aggressive phone calls are going to stop is a huge relief.

That being said, sometimes you may receive the unpleasant surprise of being sued by one of the creditors you thought you had seen the last of. This is a scary moment for anyone! Thinking that you’ve gotten out from under your debts only to discover that one of them is still after you for money is disheartening.

Can a creditor really sue me after my debts have been discharged?

Oftentimes, if a creditor is still trying to get you to repay a discharged debt, it means they didn’t receive proper notice of your bankruptcy. It’s also possible that your bankruptcy information was not shared through the right channels within the company – even if they did receive notice. Attempting to collect on a debt that has been discharged via bankruptcy is against the law.

Do I have to respond to a post-bankruptcy debt-related lawsuit?

This is where is gets kind of tricky. Even if you are no longer responsible for the debt in question, if a creditor has initiated a lawsuit against you, it cannot be ignored. Doing so will only prolong the lawsuit’s life.

Your bankruptcy attorney will be able to advise you on how to respond to any creditors who attempt to contact you after your discharge, including any that attempt to sue you for money you no longer owe. It is important to consult with your bankruptcy attorney to ensure that the debt(s) in question were actually discharged and you truly are no longer responsible for them.

An answer to any lawsuits should state the fact that you filed for bankruptcy, including a copy of your discharge and a list of all creditors. In doing so, virtually all lawsuits of this type will immediately dismissed by the court. Even if you inadvertently left a creditor off of your bankruptcy paperwork, generally all dischargeable debts will be forgiven as long as the creditor knows you’ve filed for bankruptcy.

Although you will almost never be responsible for any debt that was discharged, it is important to notify your lawyer if you are sued by one of your creditors after bankruptcy. Some debts are non-dischargeable, and you need to know what they are so that you continue making payments on them. However, chances are good that your NJ bankruptcy lawyer discussed any debts of this type with you prior to your filing date.

 

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Is Unpaid College Tuition Dischargeable in Bankruptcy?

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Unless you’ve been living under a rock for a significant stretch of time, you probably already know that student loans are very challenging to discharge via chapter 7 bankruptcy. It’s been that way since the 197os when Congress began putting limits on when graduates could discharge their student loan debt.

Prior to 1976, it was possible to discharge any student loan debt via bankruptcy. However, because so many students were failing to pay back their student loans, a law was passed with the intention of protecting federal investments. Initially, the law stated that a student loan would not be eligible for discharge within five years of its conception.

Slowly, through a series of tweaks to the law over the next two decades, the five year restriction stretched to seven years. 1998 saw the time restriction completely lifted and, in 2005, an amendment to the law was written to include private student loans, making the discharge of any type of student loan virtually inconceivable.

While it isn’t completely impossible to discharge student loan debt, to do so you must be able to prove that paying back your loan(s) will cause you ‘undue hardship.’ Proving undue hardship is exceedingly difficult to do, and those who succeed typically have some kind of severe physical disability that prevents them from earning a living.

What if I owe money directly to the school? Can I discharge that type of debt?

Ah, now here’s any interesting quandary! As it turns out, students or graduates who paid their college expenses (tuition, room and board, supplies) without signing any kind of loan paperwork or promissory note, actually have a decent chance of discharging any past due payments.

The key to whether or not your particular debt is dischargeable in bankruptcy has everything to do with nuance. For example, if you at some point received a bill from your college and failed to pay it, you technically owe the college money but not in the form of a loan.

Therein lies the nuance. Unpaid college fees such as tuition are not the same as unpaid college loans wherein you borrowed money and had a written agreement in place stating that you agreed to pay that money back. Simply failing to pay your tuition bill doesn’t magically turn it into a loan.

If you owe money directly to an institution of higher education that was never in the form of borrowed money to be repaid at a later date, you should be able to include it in your bankruptcy case and have it wiped out with a successful discharge.

However, pay close attention to the wording that your college uses in the near future, as some institutions have begun to change their paperwork/billing in order to make unpaid debts look like they were actually loans. This is an attempt to conceal the fact that your debt is dischargeable if you file for bankruptcy. These practices are not above board and your bankruptcy attorney must be diligent when reviewing any documents received from the school’s billing department.

Do you have unpaid college tuition debt that you feel should be dischargeable based on the description contained in this article? Do you have student loans that are causing you a great deal of financial hardship? In either case, Veitengruber Law can help you determine the best option for you:  a chapter 7 or 13 bankruptcy case, loan consolidation, forbearance, debt negotiation and more. Call now for a free one hour consultation.

Image credit: Seth Sawyers

Why did the Trustee Object to My Bankruptcy Discharge?

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At the time that your bankruptcy case is officially filed with the court, a trustee will be assigned to oversee the details of your case. The trustee is an impartial third party who will be selected by the court system. Your trustee is not working against you; however, he is not working for you, either. The job of the trustee is to ensure that your bankruptcy case proceeds smoothly and lawfully.

Trustees are typically attorneys themselves, but they will not be involved in your legal representation during your bankruptcy case. Chapter 7 trustees are paid a small administration fee as well as a percentage of the assets they are able to liquidate and disburse to your creditors.

In a chapter 13 bankruptcy, trustees are paid through your reorganized debt repayment plan at the end of your case. There are limits on how much money a chapter 13 trustee can receive per bankruptcy case.

In both chapter 7 and chapter 13 cases, it is the responsibility of the trustee to verify the validity of any and all financial information that you provide in your bankruptcy paperwork. The trustee checks all of your calculations and will certify their  accuracy to the bankruptcy court.

Chapter 7 trustees are also entrusted with holding the 341 hearing – the Meeting of the Creditors, which takes place approximately 30 days after your case was filed in court. During this hearing, the trustee may ask you some questions regarding any of the data included in your documents. You will be under oath and must answer truthfully. If there is any falsified data in your bankruptcy documentation or if you are determined to have lied under oath – your bankruptcy petition will most likely be thrown out due to charges of attempted bankruptcy fraud.

If you successfully make it past the Meeting of the Creditors and your trustee finds that all of your paperwork and testimony is accurate, it then becomes the trustee’s job to examine all of your assets to determine what can be sold in order to pay off as much of your debt as possible. Don’t panic: the trustee isn’t going to come in and sell everything you own, because that would defeat the purpose of filing for bankruptcy. The goal is to leave you in better financial condition than before you filed.

(New Jersey chapter 7 bankruptcy exemptions can be found here.)

Although your trustee most definitely isn’t working against you, it is within his job description to make sure you are being forthcoming in your bankruptcy. As long as you have nothing to hide, you can rest easy.

Your bankruptcy trustee also has the power to ultimately object to your discharge (elimination of your debts). A trustee may object if you:

  • Respond dishonestly to any information that is requested during your bankruptcy case or misrepresent any of your financial information in your bankruptcy documents
  • Hide, move (or attempt to hide) any of your assets or property with fraudulent intent
  • Repay some creditors above others (preferential payments)
  • Withhold evidence of pertinent financial information
  • Disobey a court order
  • In any other way attempt to defraud the bankruptcy court or your creditors

In the event that your trustee determines that you should not be granted a bankruptcy discharge, he will make his objection known via a lawsuit known as an adversary proceeding.

The trustee does not have the final say as to whether or not your discharge will be granted. You will be able to defend yourself against the trustee’s claims, and ultimately, the court will determine if your debts should be discharged or not.

If you are currently in the midst of a pro se bankruptcy case and your trustee has made an objection, be sure to connect with a bankruptcy attorney who has dealt with adversary proceedings in the past.

 

Image credit: Daniel O’Neil