24 Sep Should You be Concerned About a “Poison Pen” Letter?
Your bankruptcy filing can stir deep emotions. More than a few times, I have received calls from individual (as opposed to corporate) creditors who, after receiving a bankruptcy notice, have called me to express their displeasure that my client is seeking to discharge a debt. Sometimes these folks will appear at your 341 hearing to protest and sometimes they will write a “poison pen” letter.
Maybe you have borrowed money from friends or relatives, perhaps as a last ditch effort to avoid bankruptcy. Now, when you file, that $5,000 or $10,000 you owe your friends is now a debt that will likely be discharged in bankruptcy. Usually a few thousand dollars will not impact the bottom line of a credit card company, but your neighbor will surely feel the pain. And an individual who is about to see $10,000 disappear forever will not be happy about that prospect.
What options are available to the holder of a $5000 or $10,000 personal loan? Generally, not many. Your now former friend can file an objection to discharge of a debt under Section 523 of the Bankruptcy Code, but hiring a lawyer to pursue this type of challenge will cost several thousand dollars without any guarantee of success. Your friend can show up at your 341 hearing, but a non-attorney creditor will likely get little relief given the crowded dockets and his likely lack of experience in this setting.
What your individual creditor may do is to write a “poison pen” letter to your judge or trustee. Such a letter may include allegations of alleged improper behavior by you, such as hiding assets or misstating income.
Believe it or not, many judges and trustees take these poison pen letters seriously. Chief Judge Bihary’s opinion in the Henry case is typical – she construed the creditor’s letter as a motion to extend time to file a dischargeability complaint and directed the debtor to call the Chapter 7 trustee – and even included the trustee’s letter in her Order. Sensing a judge’s concern, it is likely that a Chapter 7 trustee who receives such a call will initiate an investigation that will cost you legal fees and possibly lead to problems in your case.
How do you minimize the likelihood that a creditor will create problems for you? Obviously, the best advice would be to avoid borrowing money from individuals in the first place – friends, relatives, co-workers – who are likely to see your bankruptcy filing as a personal insult.
Note that you should always consult with your lawyer before trying to pay these folks back prior to filing – a repayment right before your bankruptcy filing could be an improper preference.
If you have no choice but to include personal loans in your bankruptcy, make sure that everything contained in your bankruptcy filing is not only true, but can be supported by documentation.
Finally, when possible, I recommend to my clients that they contact the individual lender prior to give the lender the courtesy of a personal notice about the filing. Often, individuals who lose money in a Chapter 7 debtor are looking for an outlet to express their frustration and disappointment. Obviously you need to consider this on a case by case basis but do not discount the value of common courtesy.
by Jonathan Ginsberg, Ginsberg Law Offices
Jonathan Ginsberg, Esq.
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