Nothing can derail a Chapter 13 plan like an unexpected secured claim. Requirements for filing a secured claim vary. As a result, the claim amount may not be known until after the plan is confirmed.
A secured claim is usually against something physical that can be sold to collect on a loan. The most common secured claims in bankruptcy are:
- Recreational Vehicles (ATV, snowmobiles, boats, etc.)
- Tools and Machinery (tractors, lawn mowers, trade tools, etc.)
- Unpaid Real Property Taxes (in this case the property would be sold to pay the taxes)
- Any Other Liens on Property
Debtors rarely know the total amount of secured debt owed. The secure claim may be scheduled at $200,000.00 for a mortgage, but the secured proof of claim actually filed may be $205,000.00, the difference accounting late fees, attorney expenses, and other charges.
Tip: Always verify the exact amount owed on a secured claim. Contact the attorney representing the secured creditor and ask for a filed proof of claim with an attached detailed accounting of any additional fees. Some fees such as excessive attorney fees charged by mortgage companies don’t hold up in court. These issues generally end up in an adversary proceeding if disputed.
Tip: It’s wise for a creditor to file a secured claim in addition to sending documents to the debtor. With a claim on record there’s no confusion of facts. The debtor will know exactly what needs to be paid and can plan accordingly. If there’s an issue with the claim, the trustee will have the necessary documentation to handle the dispute.
Proof of Claims
The bar date to file a claim is 90 days from the first date set for the meeting of creditors. There is some flexibility on the allowance of late claims depending on your district. The trustee’s office reviews all filed claims ensuring the plan is fair to all creditors. There’s no set time for claim review by the trustee’s office, and a case could get confirmed months before the claims are reviewed and issues found. To avoid surprises, review all filed claims after the bar date and prior to confirmation of the plan. If you know of an item that may have a secured claim, reach out to the creditor and ask if anything is owed. If so, ask them to file a claim.
Tip: Review claims carefully. Some claims assumed as unsecured may be listed as secured, such as a wedding ring charged on a credit card. An objection to claim may be necessary if the debt isn’t actually a secured debt. Sometimes creditors are unclear if their debt is secured or unsecured, or they check the wrong box. However, if it’s jewelry, it could be considered secured debt and can interfere with the structure of the plan.
Dealing With Unexpected Debt
There are a couple ways to deal with an unexpected claim:
- Modify the plan
- Stipulation adjusting plan payments
- Pay the claim outside the plan
Secured claims must be paid back in a bankruptcy or a deal struck ensuring the claim will be paid back after the discharge. Adding a secured claim to a plan can reduce the percentage to unsecured creditors below the allowed amount and the plan could fail. Virtual Paralegal Services assists law firms with bankruptcy proceedings and petition preparation. Let our experienced team of bankruptcy paralegals assist you with your bankruptcy proceedings so you can focus on the substantive issues. Contact us today to learn more.
VPS provides paralegal and legal support services and is not engaged in any way with the rendering of legal advice. VPS encourages readers to obtain the advice of competent, licensed legal counsel as required. Any information provided by VPS is not a substitute for legal advice or assistance.