Last week I started writing about the collateral events in a bankruptcy case that can confuse, concern or surprise bankruptcy debtors. I looked specifically at the fact that many creditors will automatically discontinue ACH automatic withdrawals out of the bank accounts of bankruptcy debtors and that many creditors will disable a bankruptcy debtor’s ability to pay bills online (by the way, many pay-by-phone services are discontinued, also).
This week I will write about some other “surprises” that debtors can find in a bankruptcy case.
You will stop getting billing statements, too
For many debtors the bankruptcy automatic stay is one of the best features of a bankruptcy case. The automatic stay is the court order that goes into effect automatically upon the filing of a chapter 7 or chapter 13 bankruptcy case. But as noted last week, the automatic stay applies to all creditors - even creditors that the bankruptcy debtor plans to continue to pay.
The complication in all of this is that there are almost always some debts that the bankruptcy debtor plans to pay, even after filing the bankruptcy case. Common examples of debts individuals plan to retain are car loans and home mortgages. Because the automatic stay is a “blanket” stay, all creditors discontinue sending any invoices or contacting the debtor by phone. With the cessation of receiving monthly statements, some debtors find that they forget to make a monthly payment on a debt they desire to “keep.” The solution is to have the bankruptcy attorney send a written authorization to the creditor to whom the debtor wants to continue to pay. While a written authorization authorizing communication between a creditor and the bankruptcy debtor is almost always effective, there is no legal requirement that the creditor who receives the authorization must, upon receipt of the authorization, resume payments.
If you own a business, your name can end up in the newspaper
Many clients are concerned about the level of publicity attached to filing a bankruptcy case. For almost all of the debtors we represent at Kain & Scott, the answer is that there is very little public knowledge of any bankruptcy proceedings. So for almost all clients, the hometown newspaper is not going to print any information about anyone in the community filing a bankruptcy case. There is the possibility of newspaper publicity, though. That only applies to people who were self-employed in their own business. Bankruptcy cases in Minnesota in which the debtor used a business name are listed, on a weekly basis, in the legal advertisement section of either the StarTribune in Minneapolis, the St. Paul Pioneer Press in St. Paul, the Duluth News-Tribune in Duluth and the Fargo Forum in Fargo, North Dakota. While the notices are “tucked away” in a corner of all four of these newspapers, the debtor’s name is listed in the paper.
Don’t let your car insurance lapse!
One complication that many of my clients face is not something that a person filing a bankruptcy case would normally intuit. That is that after a bankruptcy case is filed, the bankruptcy debtor who cancels one auto-owner’s policy to get a better financial deal with a different insurance carrier often finds himself in the “risk pool” with the new insurance company, even though the debtor has a clean driving record.
The solution to this problem is easy: don’t cancel your car insurance immediately after filing your case, and don’t enter the market for a less expensive policy until two or three years after filing your case.
So that covers three other “surprises” some of our clients have run into. Knowing about these complications ahead of filing a case allows debtors to take whatever steps are necessary to avoid unwanted complications on a trip through a bankruptcy.
I’ll look at some more information that is good for people filing a bankruptcy case to know about, next week.