Do you remain on watch in your client’s Chapter 13 after confirmation?
The attorney for the couple in my office yesterday apparently thought she was off duty after confirmation.
As a result, the debtors paid more than $30,000 to the wrong creditor, the mortgage arrears weren’t paid, and their case is on the verge of dismissal four years into the case.
What went wrong
What counsel didn’t monitor was the filing of claims.
The mortgage creditor with the $33,000 in arrearages, failed to file a proof of claim. No claim, no distribution by the trustee.
The strippable junior lien holder did file a claim. Counsel hadn’t taken the necessary steps to value the lien.
A filed claim, asserting secured status, was entitled to payment. So, the trustee paid the worthless junior lien the money intended to cure the mortgage arrears and to save the house.
The takeaway
The tragedy in this story is the information that counsel needed to catch the problem early was easily available.
PACER lists the claims filed in the case.
The trustee sends an annual report showing who is being paid in the case.
I suspect I will find that the trustee notified the debtor about her intent to pay the claim not provided for by the plan. Counsel, it appears, was asleep on watch.
When filed claims matter
Your client usually chooses Chapter 13 for a reason.
They want to get current on the mortgage; pay off their car; or take care of unpaid taxes.
In other circumstances, you can leave creditors to take care of themselves. Not so in Chapter 13.
Your client has a real and post-bankruptcy interest in those claims being paid. Neither liens nor non-tax priority claims are discharged for failure to file a proof of claim. Remember that the debtor can file a proof of claim on behalf of a creditor.
The debtors are your flock. You need to stay on patrol.
Image courtesy of Flickr and DonDeBold.
