Potential Class Action Settlement 8 years post Chapter 7

[covacat]

Hi all. I was an active member on this forum many years ago when we were going through our Chapter 7 and it was such a big help. I have a question, I'm hoping someone has some experience with this.

My BR was discharged over 8 years ago. About 4 years ago I received notice that I had been made a member of a class action lawsuit against a sub-prime mortgage lender. (incidentally, the largest creditor in my BR, $$-wise). This was the first I had heard of the suit and I didn't think anything of the notice because, really, what ever comes of these things? Anyway, a few weeks ago, I received notification that the plaintiffs and the bank have agreed upon a settlement and that it has been preliminarily approved by the court. The final approval hearing is in early September. Because my mortgage was initiated prior to my BR, the trustee in my case also received notice of this settlement and any payment will be made to me and the trustee jointly. If this settlement is approved, I stand to receive a substantial sum of money, in fact almost enough to pay off all of the debts that were included in our Chapter 7, including this bank. (there is a link on the atty's website where class members can look up the proposed payment)

To complicate matters, the attorney we used has had his license revoked due to inappropriate behavior and is no longer practicing, so he will be no help. We filed when we lived in IA, we now live in AR, and the class action suit is in MO.

So, my questions are:
1 - does the trustee have any rights to this money, if there is any, considering the timeline?
2 - if the money is taken by the trustee and used to pay my creditors and they are paid in full at the amounts owed at the time of the BR, can the BR be removed/cancelled/wiped out like it never happened? I'm assuming (hoping)that there would not be interest accumulated on discharged debts. (?)
3 - if the money is used to pay creditors, will the creditor that is paying the settlement be entitled to payment?

I have contacted an attorney in IA and hope to hear back on Thursday after the holiday, but I am curious if anyone has had experience with anything like this. I sure would appreciate any input or advice.

Thanks to all!

[DebtEnder]

Has your case been closed? If so then the Trustee has abandoned this potential, now real asset. So long as he was notified, and it sounds like he was fully aware of it, then he had his chance to keep the case open. Recall that a BK can be discharged, but kept open for purpose of asset management for years in some cases.

Others may have more to add but all I can say is wow, good fortune to you. Your BK is about to drop off your credit and you'll have some nice cash very soon.

O nevermind I reread what ya said, the mortgage was started before BK, but the suit came much later. If the case was started years after BK, I don't see how they could come back after it if the case is fully closed. It's inheritance that has the post timeframe for clawback.

[justbroke]

I might be inclined to seek out a new BK attorney, at least for a consult on this. Bankruptcy cases are special and if you had an asset which was not discovered during the bankruptcy but later found, could create an interesting scenario. The code specifically allows the case to be re-opened and specifies no time limit (11 USC 350(b)).

The reason the BK code is like this is so that assets that the Trustee (and/or Debtor) were unaware of, yet could have benefited the Estate since they would have been part of the Estate, nonetheless are part of the bankruptcy estate. This allows a case to be re-opened for the purpose of administering the asset. Remember that is it ANY undiscovered asset that would have been part of the Estate. Now, if you had scheduled this on your Schedules, then and only then would the Trustee's abandonment (and/or case closing without administration of the asset) supersede any money you would receive from this asset.

Now, as to whether the Trustee would care, would be up to the Trustee.

1 - does the trustee have any rights to this money, if there is any, considering the timeline?

Yes, unless the asset was previously scheduled. Also, it's not the Trustee that has the right, it is the Bankruptcy Estate and the property of that Estate.

2 - if the money is taken by the trustee and used to pay my creditors and they are paid in full at the amounts owed at the time of the BR, can the BR be removed/cancelled/wiped out like it never happened? I'm assuming (hoping)that there would not be interest accumulated on discharged debts. (?)

If the case is re-opened and made an asset case, the Trustee would send out a notice setting the bar date to file claims. You could fight the claims and reduce how much is paid out. The BK happened and can never be removed!

3 - if the money is used to pay creditors, will the creditor that is paying the settlement be entitled to payment?

If the creditor files a claim, yes. However, as I stated above, just file an opposition (or objection) to the claim on the grounds that their actions were illegal and that it was adjudicated in a State court action and they lost. That could possibly invalidate their claim.

It reads as though you're talking about tens of thousands of dollars and a Trustee might well be very interested in stepping in your shoes and taking the money for the creditors.

[covacat]

Thanks DebtEnder! I hope you are correct. I am not actually sure when the class action suit was started. It may have been started by the initial plaintiffs as early as 2000. My BR was discharged in 2004, but I had NO IDEA a suit had been filed and that I was a class member until 2007 or 2008. I don't know if this timing will be an issue or not. It's a very strange situation. I sure wasn't looking for anything like this to happen.

Thanks again for the input.

[justbroke]

The question may be when you became entitled to the payment. If you weren't part of the class until 2007/2008, it could be argued that your bankruptcy was in 2004 and you were not "entitled" to payment or proceeds from a lawsuit until 2007. It will be interesting to hear the read at your consultation.

[covacat]

Thanks justbroke! Yes, you are correct, tens of thousands, if approved in September. I honestly don't have issue with the funds being distributed to the creditors we filed on, if that's what happens. We fully intended to repay when we borrowed the money, but you know, life happens. It is good to know that I can file an opposition. I would do so against this particular creditor due to the circumstances. Do you happen to know if interest comes into play in this situation? Or are any creditors who make a claim only eligible for the amount discharged?

I really appreciate the input. It helps! Thank you again.

[covacat]

Well, I just sent an email to the attorney handling the class action suit asking for the original filing date and the date that my name was added to the class. This will be interesting to discover. I hope to hear back from the attorney in Iowa on Thursday and to know more after speaking with him.

I will definitely update the forum as things progress. What a strange situation I find myself in.

Would love to hear more input if anyone has anything to add.

[justbroke]

The creditors could only claim up to the date of filing. Of course, they'll try to tack on fees, but you would "police" the claims and object to all that contain frivolous or "post-petition" (or those that look like they are post-petition) fees. This could reduce the claims to such a low number, that you end up getting money returned to you.

This will be interesting.

[despritfreya]

JB,

Your first post was spot on but then you went off on a tangent. The issue of when OP was added to the class does not, IMO, change anything. The act that caused the suit and subsequent settlement happened before OP filed bk therefore the cause of action was in existence on the day the bk was filed. It was just not discovered until years later. It is an asset of the estate.

The nice thing is that it is now more than 8 years since the bk was filed. Assuming the case was closed (and I have no reason to think it wasn’t), if a Trustee decides to reopen it to administer the asset there is a very good likelihood that few, if any, creditors will bother to file claims. Remember, payment is going to be directed to both OP and the Trustee so he/she will be involved. But, based upon the age of the bk I think the Trustee will abandon the asset - one can only hope.

Des.

[justbroke]

Thanks for the clarification Des! You know, sometimes I just start speculating...

[covacat]

Hello all. Thought I'd give a quick update. The trustee did file to reopen the case in order to administer the asset should there be any payment of this settlement, and the court has approved the reopening. I'm nervous about one thing and curious about another.

Since I had no knowledge of this when we filed, am I at risk of being in trouble for not listing the class action suit as an asset?

How do I monitor any activity by creditors who may file claims against this? I want to be certain that if the defendant in the class action case files a claim that I am aware so that I can object. Would I do this through PACER?

Thanks again! It will be interesting to see how this plays out.

[justbroke]

You are not in any trouble because you did not know. You did not try to conceal the asset, so no worries. There's a "Claims Register" on PACER where creditor claims will show up.

[covacat]

Thanks justbroke! That makes me feel better. Stay tuned!!