Debts "exempted" from CH7

[justbroke]

Hi. I was asked recently about what debts can be included or are subject to "exclusion" when filing CH7 or CH13. I know, for example, certain taxes are not included nor are things like HOA payments, etc. EG. Say say a merchant wants to bill someone for an amount the recipient disputes (The amount would be considered a "small claim"). If the dispute drags on, the merchant then threatens to take the recipient to small claims court. The recipient then threatens back that they will file CH7 and the merchant then gets nothing!

Everything is included and all creditors must be listed in the bankruptcy petition. Some creditors meet the definition of non-dischargeable in 11 USC 523 which describes certain debts that pass through the bankruptcy.

Is that scenario possible? Would the recipient be able to use Ch7 as "leverage" against the merchant and list that merchant as a creditor and include the "claimed" debt in order to get protection under Ch7?

As shipo mentioned creditors may "run to the courthouse steps" to obtain a judgement and then record that judgment to make it a "secured" claim. As for timing, that's everything! If you threaten bankruptcy and do nothing then the creditor will still continue their process of filing or maintaining their lawsuit against you.

No smart creditor is afraid of a debtor saying "I'm gonna file bankruptcy." They are concerned when the debtor says, instead, "I filed bankruptcy and here's my attorney name and case number." These are two very different situations.

Don't think that there are creditors that won't file suit over $2,000 or even much less. There are so-called Junk Debt Buyers (JDBs) that specifically buy charged-off debt for less than $0.10 on the dollar; sometimes closer to $0.02 on the dollar. They have so many automated systems and with how nearly every court is all automated with electronic dockets, they can file thousands of lawsuits a day. Some big players are B-Real, LVNV, Resurgent Capital, Midland Credit Management, Portfolio Recovery Associates, and more. Trust me, they make money buying these debts. (In a Chapter 13, they could even receive a windfall based on the Chapter 13.)

[BxRcvor]

While I've never been in this situation, what I have heard anecdotally is if someone threatens to file bankruptcy, the entity claiming to own the debt will often rush to the courthouse and file for a judgement. As I understand it, the odds are pretty good they can get a judgement against you before you can file a bankruptcy.

Interesting! I'm curious as to why some of the creditors in my CH7 didn't do that... especially AMEX, who was the only creditor that actually filed suit against me. The others didn't. I guess, perhaps, I beat them to the punch by filing and not letting them know I was filing. So, the debtor would have to file and be careful not to tell the creditor they were doing it until it is filed. There goes the leverage, I guess. It would have been nice to be able to "incentivize" the debtor into a structured settlement or something before having to take the step of filing.

I guess it may also depend on the cost of seeking that immediate judgement, especially with the disputed amount being very small (under $2000.00) and the knowledge that the debtor is going to file for CH7 because they can't afford to pay the debt anyway. The "cost/benefit" analysis might not work for the creditor, unless the amount is very substantial (like it was for me with Amex).

We'll see.

[shipo]

While I've never been in this situation, what I have heard anecdotally is if someone threatens to file bankruptcy, the entity claiming to own the debt will often rush to the courthouse and file for a judgement. As I understand it, the odds are pretty good they can get a judgement against you before you can file a bankruptcy.

[BxRcvor]

Hi. I was asked recently about what debts can be included or are subject to "exclusion" when filing CH7 or CH13. I know, for example, certain taxes are not included nor are things like HOA payments, etc. EG. Say say a merchant wants to bill someone for an amount the recipient disputes (The amount would be considered a "small claim"). If the dispute drags on, the merchant then threatens to take the recipient to small claims court. The recipient then threatens back that they will file CH7 and the merchant then gets nothing!

Is that scenario possible? Would the recipient be able to use Ch7 as "leverage" against the merchant and list that merchant as a creditor and include the "claimed" debt in order to get protection under Ch7?

Thanks much.