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Late Filed Claims in Chapter 13 – What Happens to Them?

Posted on Dec 13, 2012 in Bankruptcy, Bankruptcy Information, Chapter 13, Illinois, Wisconsin

Suppose you file a Chapter 13 Bankruptcy and list all of the creditors you can think of.  All is well and good and the judges confirms (approves and signs) the plan to pay the creditors.  But little did you know that there was one creditor that was lurking out there, or that was assigned a debt and never received notice of the bankruptcy.  They didn’t file a proof of claim before the deadline (usually around 120 days from filing).  What happens to them?

Well it depends on where you file.  In Illinois, the case of In Re Wright suggests that the creditor is out of luck and can’t file a claim.  That means they don’t get paid through the bankruptcy.  However, that also means that the debt you owe to them doesn’t get discharged.  That’s harsh to both the creditor (who could get paid something, and faster) and the debtor (who wants to discharge the debt, especially if it’s a low payment plan to the creditors!)

One of our Wisconsin judges, Judge Kelley, issued a ruling in a case called In re Washington in which she followed prior law from the Western District of Wisconsin.  In her decision, she held that in the following conditions, the proof of claim should be allowed:

“In this case, it is apparent that (1) the Creditor did not receive notice of the Chapter 13 case until after the claims bar date expired; (2) upon learning of the case, the Creditor promptly filed a proof of claim; and (3) the prejudice to the Creditor of disallowing the claim outweighs the prejudice to the other creditors of allowing the claim.”

Unlike Chapter 7, where a failure to list a creditor may not prevent a discharge, Chapter 13 requires notice to creditors and has deadlines.  Therefore, if you know of a debt you forgot to list, tell your lawyer and give the creditor notice as quickly as possible to file a claim!

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