If a creditor’s proof of claim on a “priority” or secured debt is too high, object to it to avoid paying too much in your Chapter 13 case.
Our last blog post was about circumstances when it’s NOT worth objecting to a creditor’s proof of claim. Often in a Chapter 13 “adjustment of debts” case the amount of money you pay towards all your “general unsecured” debts is a fixed amount. That amount could shift based on changes in your income and/or expenses. But in the end you pay a fixed amount to the pool of your “general unsecured” debts. The total amount of debts in that pool often does not affect how much you pay. So, since it makes no monetary difference to you, in these situations it’s not worth fighting with these creditors about how much you owe.
But there definitely are other situations when it IS worth objecting to a creditor’s proof of claim. The objectionable claim can directly affect how much you must pay into your Chapter 13 payment plan before you finish it. Examples when this can happen include situations in which the proof of claim is for a higher-than-expected “priority” debt, or a higher-than-expected secured debt.
“Priority” debts are special categories of debts that the law says you must fully pay within your Chapter 13 plan. The most common examples are unpaid child/spousal support obligations and income taxes. Because you have to pay them in full before you can finish your case, a creditor’s proof of claim on a “priority” debt that’s more than you expected results in you having to pay that much more during your case. So if you have good grounds for objecting, it’s probably worthwhile to do so.
For example, a support enforcement agency’s proof of claim may not take into account payments you made directly to your ex-spouse. So your bankruptcy lawyer would object in order to get the proof of claim down to the right amount.
Besides objecting to a proof of claim’s amount, you may want to object to its “priority” status. Whether a debt is a “priority” one depends on whether it meets certain conditions. For example, an income tax debt may be a “general unsecured” one instead if it’s old enough. If it’s not a “priority” debt, almost always you would not have to pay it in full. You might not even have to pay any of it. Taxing authorities are usually pretty good at following the “priority” designation laws. But it’s worth making sure, and then objecting to a proof of claim’s “priority” status when appropriate.
You have to pay some secured debts in full during your Chapter 13 case.
For example, if you are $8,000 behind on your first mortgage, if you want to keep your home you have to bring that mortgage completely current. Mortgage lenders are notoriously inaccurate in their arrearage accounting. This is especially true when it comes to tracking payments you’ve made vs. those held in “suspense,” and questionable tacked-on late fees and attorney fees. Do not trust the amounts on their proofs of claim to be accurate.
Discuss with your lawyer the local bankruptcy court’s procedures for determining the accurate mortgage arrearage amounts. Make sure you don’t pay more than you should.
Other Proofs of Claim Worthy of Objection
Our next blog post will cover other creditor proofs of claim potentially worth objecting to.