Chapter 7 completed, but pending lawsuit.

[Nevadaguy]

Hello all,

I filed a chapter 7 a few months ago, and was looking for feedback.

See, I "only" had about 70K in debts that I erased (mostly from IRS debt), but I had a pending lawsuit that I disclosed as well.

So, fast forward a few months, and the lawsuit is looking good, and it might be about 100K or so.

Unfortunately, my attorney said that I can only keep 10K of that money and the rest has to go back to pay the creditors since it was less than 2 years from when I filed.

If the lawsuit settlement was over 2 years, then I would be fine. It is not official, but the settlement looks like it will come in, in a few months.

I am just upset because my creditors will get all the money , and I will still have the BK on my record for 10 years.

Are there any options here?

I felt I needed to file due to health issues and no money. The interest and penalties were adding up fast too. I waited over 3 years for this settlement and nothing. Of course, now they finally want to settle when I don't have the money and I filed for the Chapter 7, which went through fine.

Thanks for any feedback.

-Mr. Nevada

[despritfreya]

Nevadaguy

Welcome to the Forum. Hopefully we can answer your questions.

I don't know what the 2 years has to do with this but, your claim against a third party is an asset. On the day you filed Chapter 7, your rights/ownership in/of the asset transferred to the Chapter 7 Estate and control of the asset was turned over to the Trustee subject to any allowed exemption. Are you indicating that there is an allowed exemption for 10% some portion of that asset? If "yes", what portion - wages, pain & suffering, property damage, etc.?

To the extent you do not have an allowed exemption, you no longer have control over the asset. The right to prosecute the lawsuit, settle the lawsuit, sell or abandon the claim belongs to the Chapter 7 Trustee. If you wanted to keep control, you either should not have filed bk or have filed under a different Chapter - probably Chapter 13. In a Chapter 13 you would have had to pay the creditors what they would have gotten if you had filed Chapter 7, but it could have been paid over time. I assme that before you filed, your attorney went over these options.

As to payment of claims, the Trustee will use the asset to pay claims in the following order:

1. The trustee's allowed percentage.
2. The fees of the attorney the trustee hired - this would include his regular attorney and Special Counsel if one was hired.
3. Priority claims such as taxes if you owed any (if a claim is filed).
4. Unsecured creditors who timely filed claims.
5. Unsecured creditor who filed late claims. (Note: typically, if a creditor wants to participate, it will timely file a claim so late claims are rare.)
6. Once all filed claims are paid in full, if there is anything left over, it is returned to you.

Bottom line - at this point there probably are no options. I suppose you could try to convert to a Chapter 13 but, this late in the process, such an attempt may be deemed "bad faith". You need to discuss this with your attorney.

Des.

[Nevadaguy]

Yes, I am "screwed" on this. Can't have my cake and eat it too. It just irks me that the creditors might get everything back and I still have the Chapter 7 on my record.

Bad timing on this for me.

I guess the play would have been to be patient with everything, and let the lawsuit settle before filing. My attorney is good, but they have their agenda to get business from people as well.

[Nevadaguy]

Nevadaguy

Welcome to the Forum. Hopefully we can answer your questions.

I don't know what the 2 years has to do with this but, your claim against a third party is an asset. On the day you filed Chapter 7, your rights/ownership in/of the asset transferred to the Chapter 7 Estate and control of the asset was turned over to the Trustee subject to any allowed exemption. Are you indicating that there is an allowed exemption for 10% some portion of that asset? If "yes", what portion - wages, pain & suffering, property damage, etc.?

To the extent you do not have an allowed exemption, you no longer have control over the asset. The right to prosecute the lawsuit, settle the lawsuit, sell or abandon the claim belongs to the Chapter 7 Trustee. If you wanted to keep control, you either should not have filed bk or have filed under a different Chapter - probably Chapter 13. In a Chapter 13 you would have had to pay the creditors what they would have gotten if you had filed Chapter 7, but it could have been paid over time. I assme that before you filed, your attorney went over these options.

As to payment of claims, the Trustee will use the asset to pay claims in the following order:

1. The trustee's allowed percentage.
2. The fees of the attorney the trustee hired - this would include his regular attorney and Special Counsel if one was hired.
3. Priority claims such as taxes if you owed any (if a claim is filed).
4. Unsecured creditors who timely filed claims.
5. Unsecured creditor who filed late claims. (Note: typically, if a creditor wants to participate, it will timely file a claim so late claims are rare.)
6. Once all filed claims are paid in full, if there is anything left over, it is returned to you.

Bottom line - at this point there probably are no options. I suppose you could try to convert to a Chapter 13 but, this late in the process, such an attempt may be deemed "bad faith". You need to discuss this with your attorney.

Des.

Thanks for the feedback.

Since I might get back to work soon, I will look into a Chapter 13 conversion. I was actually in the Chapter 13, but after some health issues, I left my job and went into a Chapter 7. The lawsuit was going on 3 years, and felt like it would never end. Just recently, I get an email, indicating that they will likely want to settle. Regardless, if I go back to work, I might be able to go back to the 13 because we are not close to a settlement amount yet.

It is such a mess because my lawsuit was a legitimate grip that I was 100 percent correct on, due to the corruption I reported. Also, legitimate health issues lead to no income. I was trapped into this Chapter 7 due to stress from all of the above.

I think the take away from all of this is to think about all options before signing anything. Like I stated earlier, the play would have been to let any potential assets settle before filing.

[Nevadaguy]

So, it is possible to convert a Chapter 7 into a Chapter 13? I filed in May for the Chapter 7, but was previously in a Chapter 13 for about a year (I went back to the Chapter 7 after the job loss and health issue).

Any feedback would be appreciated.

[despritfreya]

I was actually in the Chapter 13, but after some health issues, I left my job and went into a Chapter 7. The lawsuit was going on 3 years, and felt like it would never end. Just recently, I get an email, indicating that they will likely want to settle. Regardless, if I go back to work, I might be able to go back to the 13 because we are not close to a settlement amount yet.

This is an important bit of information you initially did not disclose. Your next post makes it even more confusing:

I filed in May for the Chapter 7, but was previously in a Chapter 13 for about a year

Was the Chapter 13 dismissed and then you filed a new case with case number 2 filed as a Chapter 7? Or, did you convert the Chapter 13 to a Chapter 7.

I will assume that you converted the Chapter 13 to a Chapter 7.

The Chapter 13 was filed for the exact reason I alluded to - to keep control. Once you converted, that control transferred to the Chapter 7 Trustee. Since you converted in May, 2023, you must have had your 341 meeting in June. If so, you should receive your Discharge sometime in August. Once you receive the Chapter 7 Discharge, re-converting to a Chapter 13 is probably not in the cards. Further, I am not even sure re-converting is allowed under the Bankruptcy Code and, while I have done this once or twice over the past 30 years for a client or two, I can tell you that I sat in on a Hearing a few months ago where one of the Judges in Arizona denied the Motion to Re-Convert. His reasoning was that the Code only talks in terms of conversion, not in terms of allowing a Debtor to move from one chapter to another and then back. Admittedly, this Judge is a "strict constructionist" as to interpreting the law. You need to talk to your attorney.

Des.

[Nevadaguy]

This is an important bit of information you initially did not disclose. Your next post makes it even more confusing:



Was the Chapter 13 dismissed and then you filed a new case with case number 2 filed as a Chapter 7? Or, did you convert the Chapter 13 to a Chapter 7.

I will assume that you converted the Chapter 13 to a Chapter 7.

The Chapter 13 was filed for the exact reason I alluded to - to keep control. Once you converted, that control transferred to the Chapter 7 Trustee. Since you converted in May, 2023, you must have had your 341 meeting in June. If so, you should receive your Discharge sometime in August. Once you receive the Chapter 7 Discharge, re-converting to a Chapter 13 is probably not in the cards. Further, I am not even sure re-converting is allowed under the Bankruptcy Code and, while I have done this once or twice over the past 30 years for a client or two, I can tell you that I sat in on a Hearing a few months ago where one of the Judges in Arizona denied the Motion to Re-Convert. His reasoning was that the Code only talks in terms of conversion, not in terms of allowing a Debtor to move from one chapter to another and then back. Admittedly, this Judge is a "strict constructionist" as to interpreting the law. You need to talk to your attorney.

Des.

Thanks for the advice.

After my bike ride today, I got some clarity, and probably should not complain about my situation. I win regardless of the outcome.

I just feel a bit "hoodwinked" here because I will have a Chapter 7 on my record, and my creditors still are likely going to get paid.

Another option would be for my attorney in the lawsuit to drag out my settlement for over 2 years?

[justbroke]

I just feel a bit "hoodwinked" here because I will have a Chapter 7 on my record, and my creditors still are likely going to get paid.

Hoodwinked? A bankruptcy protects you from creditors coming for you today, with a Chapter 13 protecting you from the creditors for up to 5 years. It's a shield and a sword.

Another option would be for my attorney in the lawsuit to drag out my settlement for over 2 years?

This won't matter. It's property of the bankruptcy estate subject to any exemptions.

[Nevadaguy]

Hoodwinked? A bankruptcy protects you from creditors coming for you today, with a Chapter 13 protecting you from the creditors for up to 5 years. It's a shield and a sword.

This won't matter. It's property of the bankruptcy estate subject to any exemptions.

Well, I am thankful for the Chapter 7.

But, my main point is that it would have been better to WAIT for the decision on the lawsuit (its not official, but it looks good) and then file. By not waiting, I have to pay the creditors back.

Sure, I did save on interest and penalties and got protection for a short time in the Chapter 7, so that is good.