Ok, so you find yourself in the unfortunate position of facing a likely objection from a creditor...so now what?
What happens first
The first thing you will see is a creditor will file a "Notice of Appearance" in your BK. By itself, this filing is innocuous and can mean many things, but it is the first step in the objection process. The filing, itself, does two things, (1) makes the creditor an official party to your BK (2) and copies them (electronically) on all items that are filed in your BK.
"Typically", the next thing that will happen is the attorney for the creditor will contact your attorney (or you, if you are filing pro se) to discuss the situation to determine if settlement is possible and glean possible defenses you may have to the objection.
Side question...How long does a creditor have to object?
If a creditor is going to object, they must file their objection within 60 days from the first scheduled date of the 341 meeting. Thus, if your 341 meeting is continued for some reason (legal jargon for rescheduled), the deadline is still 60 days from that FIRST scheduled date of the 341 meeting.
What are my options
(1) Reaffirmation Agreement: During the aforementioned phone call, the creditors attorney will discuss the possibility of doing a reaffirmation agreement, whereby, the balance is reduced and you agree to make payments until that balance is paid.
Most objections are settled with reaffirmation agreements.
Inside Info Alert
Most attorneys that represent these creditors are authorized to settle the case for 50% of the balance owed, and accept payment plans up to 12-18 months, depending on the amount of debt owed. Keep in mind, the attorney is working on contingency, so they have a stake in getting the case resolved with as little effort as possible.
(2) Fight the objection. If the objection actually gets filed, you can, or your attorney (if you are willing, and "able" to pay your attorney) to fight the claim.
(3) Do nothing. Sometimes, if the creditor's case is weak, they may threaten an objection in hopes of getting a reaffirmation agreement, but if you call their bluff, and do nothing, the creditor "might" simply walk-away. Obviously, this last option is inherently risky and should only be made in consultation with your attorney that can assess the strength of the creditor's case.
If no Reaffirmation agreement can be worked out and the creditor does not walk-away...then what?
Odds are, if the objection is based on a claim that falls outside the 70/90 day rule (see Part I), the creditors attorney will likely attend your 341 meeting to ask you some questions. The reasons for doing this are two fold (1) to assess your explanation for the questionable charges and thereby asses the strength of the creditors case, and (2) to lock you into an explanation...keep in mind, you are under oath at the 341 meeting, so if you change your story later on, the creditor's attorney can use your statements at the 341 meeting to attack your credibility.
However, even if the creditor has a strong case, the odds of them showing at the 341 meeting are still only 60/40.
The next thing that will happen is the Creditor will file the opening salvo...the Objection to Discharge of XYZ Creditor's Debt. This pleading begins the adversarial proceeding that will culminate in a hearing before the BK Court. The rules controlling an adversarial proceeding are outlined in Part VII and Part IX of the Bankruptcy Rules of Procedure. Note, each local BK district also has their own set of local rules.
The Objection has been filed, now what?
First, keep in mind, option 1 (reaffirm) and option 2 (fight) are still on the table. Even though an objection has been filed, you can still negotiate a settlement, but, from a technical standpoint, the settling document would now be a Stipulated Judgment, not a reaffirmation agreement, but the result is the same.
Second, you will need to respond to the Objection. The objection is just like a Civil Complaint and requires an Asnwer from the Debtor.
From here, the objection proceeds much like standard litigation. The parties will have to negotiate a discovery order (for evidence), etc. and eventually a hearing will be held.
Note, it is beyond the scope of this post to go into specifics about how to defend an objection...this post is merely informational and designed to give you an overview of the process.
So, what does the creditor need to prove, and what do I need to do to defend the accusations.
The primary way a creditor proves their case is to show the court that you were in financial distress at the time you made the objectionable transactions (of course, this scenario assumes you didn't commit actual fraud, i.e. lying to get credit, or made obvious, frivolous, luxury purchases etc). As a result, much of your financial history will be subpoenaed for the time frame surrounding the objectionable transaction...typically 12 months prior to the transaction, and all the months from the transaction to the BK. Moreover, since this is a Civil Matter, you WILL be called to testify.
As for defending the accusations, I can only give general advice. But your goal is to poke holes in the creditor's underlying threory...that no reasonable person could have expected to be able to pay off the debt...at the time the debt was taken out. How you accomplish that task is fact specific.
What happens if the creditor wins?
A judgment is entered in favor of the creditor declaring the debt non-dischargable. This judgment can ultimately be used in State Court to get a state judgment that can then be used to garnish wages, etc.
One thing to note...you will NOT be held responsible for the creditor's attorney's fees and costs if you lose.
What happens if I win
The debt gets discharged in your BK...and more than likely the creditor will have to pay your attorney's fees and costs (this fact is another reason why the attorney's involved do not bring questionable cases that push the boundries of the law).
Practical Considerations
Should you settle or fight. Given that most debtors settle, odds are, if you are facing a likely objection, you too will probably settle. First, the cost to defend the claim is high; in a normal BK case, the fee you paid your attorney does NOT cover defending you in an adversarial proceeding; having your attorney do so could cost anywhere from $2,000-$4,000+. Second, you need to consider the affordability of settlement. If you get a reduction in balance and the payments are manageable, especially if the settlement amount is less than the cost to defend, you should take it. Believe it or not, most creditor's attorneys do not "bully" this fact...and here is why, (1) the attorney is on contingency, he is not going to waste resources on "questionable" cases. (2) the creditor places the account with the attorney, so there has already been an internal review of the case before the attorney ever sees it.
Granted, we would all prefer to simply discharge the debt, but sometimes, you still have to pay for some mistakes. In any event, you should at least consult with your attorney about the situation and get their expert advice in how to deal with an objection if it should occur.
What happens first
The first thing you will see is a creditor will file a "Notice of Appearance" in your BK. By itself, this filing is innocuous and can mean many things, but it is the first step in the objection process. The filing, itself, does two things, (1) makes the creditor an official party to your BK (2) and copies them (electronically) on all items that are filed in your BK.
"Typically", the next thing that will happen is the attorney for the creditor will contact your attorney (or you, if you are filing pro se) to discuss the situation to determine if settlement is possible and glean possible defenses you may have to the objection.
Side question...How long does a creditor have to object?
If a creditor is going to object, they must file their objection within 60 days from the first scheduled date of the 341 meeting. Thus, if your 341 meeting is continued for some reason (legal jargon for rescheduled), the deadline is still 60 days from that FIRST scheduled date of the 341 meeting.
What are my options
(1) Reaffirmation Agreement: During the aforementioned phone call, the creditors attorney will discuss the possibility of doing a reaffirmation agreement, whereby, the balance is reduced and you agree to make payments until that balance is paid.
Most objections are settled with reaffirmation agreements.
Inside Info Alert
Most attorneys that represent these creditors are authorized to settle the case for 50% of the balance owed, and accept payment plans up to 12-18 months, depending on the amount of debt owed. Keep in mind, the attorney is working on contingency, so they have a stake in getting the case resolved with as little effort as possible. (2) Fight the objection. If the objection actually gets filed, you can, or your attorney (if you are willing, and "able" to pay your attorney) to fight the claim.
(3) Do nothing. Sometimes, if the creditor's case is weak, they may threaten an objection in hopes of getting a reaffirmation agreement, but if you call their bluff, and do nothing, the creditor "might" simply walk-away. Obviously, this last option is inherently risky and should only be made in consultation with your attorney that can assess the strength of the creditor's case.
If no Reaffirmation agreement can be worked out and the creditor does not walk-away...then what?
Odds are, if the objection is based on a claim that falls outside the 70/90 day rule (see Part I), the creditors attorney will likely attend your 341 meeting to ask you some questions. The reasons for doing this are two fold (1) to assess your explanation for the questionable charges and thereby asses the strength of the creditors case, and (2) to lock you into an explanation...keep in mind, you are under oath at the 341 meeting, so if you change your story later on, the creditor's attorney can use your statements at the 341 meeting to attack your credibility.
However, even if the creditor has a strong case, the odds of them showing at the 341 meeting are still only 60/40.
The next thing that will happen is the Creditor will file the opening salvo...the Objection to Discharge of XYZ Creditor's Debt. This pleading begins the adversarial proceeding that will culminate in a hearing before the BK Court. The rules controlling an adversarial proceeding are outlined in Part VII and Part IX of the Bankruptcy Rules of Procedure. Note, each local BK district also has their own set of local rules.
The Objection has been filed, now what?
First, keep in mind, option 1 (reaffirm) and option 2 (fight) are still on the table. Even though an objection has been filed, you can still negotiate a settlement, but, from a technical standpoint, the settling document would now be a Stipulated Judgment, not a reaffirmation agreement, but the result is the same.
Second, you will need to respond to the Objection. The objection is just like a Civil Complaint and requires an Asnwer from the Debtor.
From here, the objection proceeds much like standard litigation. The parties will have to negotiate a discovery order (for evidence), etc. and eventually a hearing will be held.
Note, it is beyond the scope of this post to go into specifics about how to defend an objection...this post is merely informational and designed to give you an overview of the process.
So, what does the creditor need to prove, and what do I need to do to defend the accusations.
The primary way a creditor proves their case is to show the court that you were in financial distress at the time you made the objectionable transactions (of course, this scenario assumes you didn't commit actual fraud, i.e. lying to get credit, or made obvious, frivolous, luxury purchases etc). As a result, much of your financial history will be subpoenaed for the time frame surrounding the objectionable transaction...typically 12 months prior to the transaction, and all the months from the transaction to the BK. Moreover, since this is a Civil Matter, you WILL be called to testify.
As for defending the accusations, I can only give general advice. But your goal is to poke holes in the creditor's underlying threory...that no reasonable person could have expected to be able to pay off the debt...at the time the debt was taken out. How you accomplish that task is fact specific.
What happens if the creditor wins?
A judgment is entered in favor of the creditor declaring the debt non-dischargable. This judgment can ultimately be used in State Court to get a state judgment that can then be used to garnish wages, etc.
One thing to note...you will NOT be held responsible for the creditor's attorney's fees and costs if you lose.
What happens if I win
The debt gets discharged in your BK...and more than likely the creditor will have to pay your attorney's fees and costs (this fact is another reason why the attorney's involved do not bring questionable cases that push the boundries of the law).
Practical Considerations
Should you settle or fight. Given that most debtors settle, odds are, if you are facing a likely objection, you too will probably settle. First, the cost to defend the claim is high; in a normal BK case, the fee you paid your attorney does NOT cover defending you in an adversarial proceeding; having your attorney do so could cost anywhere from $2,000-$4,000+. Second, you need to consider the affordability of settlement. If you get a reduction in balance and the payments are manageable, especially if the settlement amount is less than the cost to defend, you should take it. Believe it or not, most creditor's attorneys do not "bully" this fact...and here is why, (1) the attorney is on contingency, he is not going to waste resources on "questionable" cases. (2) the creditor places the account with the attorney, so there has already been an internal review of the case before the attorney ever sees it.
Granted, we would all prefer to simply discharge the debt, but sometimes, you still have to pay for some mistakes. In any event, you should at least consult with your attorney about the situation and get their expert advice in how to deal with an objection if it should occur.
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