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Brent Blanchard
Brent Blanchard, Bankruptcy Attorney
Category: Bankruptcy Law
Satisfied Customers: 1975
Experience:  Twelve years experience in all aspects of debtor & creditor BK.
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When a Loan becomes charged off does it then become an unsecured

Customer Question

When a Loan becomes charged off does it then become an unsecured debt and what is the percentage they are allowed in a chapter 13 bankruptcy?
Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  Brent Blanchard replied 8 years ago.
I have not seen any secured debts get charged off,Customer They have always been unsecured debts like credit cards, or the under-secured (and therefore nonsecured) portions of secured debts on personal property like cars or recreational vehicle "toys".

The "percentage" allowed in a Ch13 BK is totally dependent on the total "fund" of Plan payments available for debts of similar class. The order of payment is secured debts first, unsecured priority debts second, and unsecured nonpriority debts last. There are more, but these three are the most common. Generally, each class must be paid in full before any money goes to the next-lower class. If there is not a full payout under the Plan, the creditors in that last class share an equal percentage ("pro-rata") of the funds available.

Getting "charged off" just means the creditor is no longer seeking recovery. It's more of an accounting thing, with potential tax consequences to the debtor because of an IRS rule that some types of loan forgiveness = income. A creditor with a charged-off debt can still submit a creditor's claim in the BK and hope to get part of its money.

"Where the funds are" regarding canceled checks matters ONLY to whether the money was properly credited to the underlying debt. With $39 late fees, "global default" provisions jacking interest rates to 24.99% or more if you're late on any credit payment anywhere in the world, and other "fees" and such chargeable to a late-paying customer being written into so many credit agreements these days, it's very common for late partial payments to not make a dent in the principal balance owed.

If you terminate the law firm, they will still have a right to full payment for the services they have rendered to date. Much of that work does not appear in the BK schedules and paperwork already filed. Some work is undoubtedly in preparation for the next phase/events in your Ch13 and remains "invisible" but still real.

"Where do I go to be resourceful in this process to file suit independent of a lawyer?"

Sorry, but the best answer is "law school, with an emphasis on litigation, business entities and finance."

Second-best answer is your nearest law library, or a subscription to Westlaw, Lexis-Nexis, or Loislaw. Besides statutes and case law regarding the merits of your claim, you have state or federal court rules of civil procedure (including pretrial rules, discovery rules, evidentiary rules, some strict requirements for paperwork submissions the last 90 days before trial), and local court rules to deal with.

If you choose to go it alone, be advised up front that despite the neato-sounding name, "Corpus Juris Secundum" is probably the weakest authority to cite.

The biggest keywords to be aware of for the type of case you describe are "prudent investor rule" (and whether your opponent's duties included being limited by that rule in its investment management duties), "declining market", "depreciating assets", and "expert opinion" specifically regarding financial/investment disputes.

You deserve a candid statement of WHY an attorney believes you do not have a case. Legal analysis of the contract(s)/agreements and the terms of the trust itself is critical to assessing whether the filing fees and costs/expenses of suit would be worth the risk. I do not know the local amounts for each type cost and expense, but you need to find out:

1. Filing fee (usually nominal in the big picture, $350 or less in the states I've looked at);
2. Jury Demand fee;
3. Service of process fees (costs in court-talk)($50-200 per defendant, most of the time);
4. Publication costs if any defendant can't be found (on top of the service of process costs which must be incurred to prove that the person cannot be found);
5. Photocopy/document reproduction costs during discovery (searchable electronic formats are best if available) ranging from hundreds to thousands of dollars;
6. Expert witness fees (usually "expenses" in court-talk) which can make you realize that attorneys in many ways sell their services for cheap;
7. Court reporter fees for transcripts of depositions during the discovery process (costs in legal-talk) (these often equal about half the hourly cost of having an attorney there at the depo);
8. Postage, courier/document delivery, long-distance call, and other communications costs; and
9. Travel costs/expenses.

Depending on what statutes or legal doctrines used to seek recovery, some "expenses" might not be taxable as recoverable "costs" of suit if you win.

I strongly suggest that if the two attorneys who declined your case did so in a "free" consultation, that you schedule half-hour appointments with each of them to pay for a more detailed explanation of the laws, court rules, common law, evidentiary elements, and facts which combine to make each attorney make that conclusion.

Take good notes or ask for a letter outlining the discussion of the meeting.

Such money would be very well-spent to put the other attorney's reasonings in front of any attorney who is saying the case might be worthwhile. Often, a more informed or experienced attorney can see the "exceptions" or other reasons which overcome the other attorney's analysis saying there's not a good case. On the other hand, sometimes the skeptical attorney's facts and reasoning are valid and could take some of the "steam" out of a willing but perhaps mistaken or too-optimistic attorney's analysis.

It's not always JUST the fact that the opponent is a huge and well-financed litigation machine. Sometimes parts of a case suck so badly, it truly is NOT worth litigating.

As the claimant, you should get fully informed about the good, the bad, and the ugly of your situation. There's no substitute for getting competent legal advise on this before pulling the trigger on litigation.

I've seen many potential cases evaporate because the claimant's rights under the applicable contract were too weak. Without the cleverly-worded limits on what was promised by the other side, those consultation clients would have ordinarily had strong cases with provable damages and very high likelihoods of success.

Hope this helps.


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Thank you.

Expert:  Brent Blanchard replied 8 years ago.
Is there anything in your question that remains unanswered?

Thank you.