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Court to Creditor: You Snooze, You Lose

Posted on Sep 12, 2012 in Bankruptcy, Chapter 13, Wisconsin

“Defer no time, delays have dangerous ends.” – William Shakespeare

Supreme Court and lower court decisions in recent years (including the United States Aid Funds Inc. v. Espinosa decision) have repeatedly emphasized the need for creditors to object to Chapter 13 plans in a timely fashion.

A Bankruptcy Court decision by Judge Shapiro in the Eastern District of Wisconsin confirms this.  In the Cramer case, the debtors filed and completed a Chapter 13 plan.  In the plan, they proposed to assume a contract with Citizens Bank for a loan and lien securing the travel trailer.  Rather than pay the loan through the plan like traditional plans call for, the plan proposed a direct payment outside the plan.  A little unusual perhaps, but not against the code.

The plan was confirmed without objection, and the debtors finished payments.  They defaulted on the car payments, perhaps intentionally, and Citizens repossessed the car, sold the car, and came up with a deficiency balance.  They then sued the debtors to get a judge’s order that this debt, arising after the case filing, was not dischargeable.

Unfortunately for the bank, they failed at any point to file an objection to dischargeability (which they most likely would have lost initially when the debt was secured) or any objection to plan confirmation.  They received payments for years, and because the plan did not treat the debt under Section 1322(b)(5) of the Code, the creditor was severely late and could not claim a right to pursue the debtors any more.

The bank and its attorneys should remember their Shakespeare and act in a prompt matter to preserve their rights, remembering that time is often critical in the law.


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