Help with Checklist for BK 13 Filing

[Andy Mirza]

I'm looking for help from the crowd on this one.

I'm putting together a blog post with a checklist that a creditor/lender should follow in case their borrower files a Chapter 13 bankruptcy petition. The purpose is to provide some guidance to investors that aren't familiar with that situation and are looking for help on what to do. If you google "bankruptcy," the things that pop up are for debtors and debtor attorneys. It's hard to find info for creditors.

I've got some experience with BK's but I'm sure there are a lot of folks out there with more experience than me. Also, there are so many different variations, especially in how BK judges rule, that I'm sure others out there will have helpful experiences.

So far, here's my Chapter 13 Bankruptcy Checklist:

1. Monitor the BK in PACER (Not checking PACER is like flying blind; you need to see what's been filed and when the relevant dates are)

2. Postpone or Cancel the Trustee or Sheriff's Sale

3. Find an Attorney to Represent You

4. Wait to see what the debtor files (is the Debtor making a genuine or a bad faith filing?)

5. Determine your strategy (are you trying to liquidate ASAP like I typically do? Or maybe it's the same to you whether you liquidate or collect payments over time)

6. File a Proof of Claim

7. Take Action if your strategy dictates:

       a. Object to Plan (has anyone objected to a plan and had the BK dismissed? I haven't)

       b. Motion for Relief

       c. Attend the Meeting of Creditors (has this worked for anyone?)

8. Continue to Monitor the BK in PACER at least once a month

Please provide comments, constructive criticism, additions, suggestions :)

[Mike Hartzog]

Hi Andy - Good list here.  

I would suggest putting filing of the POC in the #1 slot.  My experience is that borrowers tend to understate what they owe, and filing of the POC can help you get the correct allocation of any BK payments the borrower makes.  Also, in Part 1 section 3 of the POC, I would suggest putting the loan servicer information in the "Where should payments to the creditor be sent?"  Those payments need to be applied to the loan and if you have the payments come to you, you will need to deal with endorsing them to the servicer and forwarding.  So good to avoid that. Also in that same section, put yourself or your business in the  "Where should notices to the creditor be sent?" section.  This last part helps avoid additional legal fees.  Many attorneys will put there firm's contact information there and then charge you to read the notices, which is completely unnecessary in my experience.

Another note with regard to borrowers who like to abuse BK to avoid foreclosure and not perform on their BK plans. The limit to the number of times they can foreclose and get an automatic stay is 3 within a 12 month period. (That's the rule in Texas anyway where I have the majority of BK experience. May be nation wide, but not certain.) So it pays to be ready when the 3rd one is dismissed if it is within the 12 month period. At this point the lender has cancelled foreclosure the two prior times and it should be a matter of quickly rescheduling the sale in DOT states.

Also it pays to closely monitor BK plan payments.  If the borrower fails to perform on their BK plan you can motion for relief to get the stay lifted.  I have done this successfully before, with the end result being an agreed order terminating the stay.  You are then free to foreclose without the threat of yet another BK filing blocking the sale.

One more point which may be obvious but your legal expenses for dealing with the BK are typically allowable to add to the loan as an advance.