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I suppose the most common type of dispute is over the dischargeability of a certain debt. Some kinds of debts are dischargeable, generally speaking. Medical debts, for example, are viewed very sympathetically by bankruptcy courts because of the unequal bargaining power associated with them. Most credit card debt, unless there is something fraudulent going on, that’s generally going to be discharged. Other kinds of debts, you are just not getting rid of them. Simple examples are most tax debts, obligations to pay child support or alimony, student loans and that’s of course, on the personal side. Things are a little bit different on the business side. Now there are 3 kinds of debts that will be successfully discharged unless a creditor challenges their discharge.
They are debts incurred through fraud, debts that are a result of a breach of fiduciary duty which does include embezzlement and larceny and debts that are the result of doing willful and malicious harm to a person or a property. Those debts will be discharged unless the creditor challenges their discharge and the way a creditor does that is by initiating an adversary proceeding and just initiating an adversary proceeding is not enough, the creditor has to win. But if the creditor wins then that debt will not be discharged upon the creditor getting a discharge whereas one wrinkle in that is that in Chapter 13, some debts that are not dischargeable in Chapters 7 or 11 are dischargeable in Chapter 13 and one of those is willful and malicious harm to property. of course, willful and malicious harm to a person, that’s a different story but willful and malicious harm to property can be discharged in a Chapter 13.
Dischargeability or non-dischargeability actions are fairly common. Another kind of dispute that comes up is a claim objection. So, if the debtor is in, let’s say, a plan of reorganization, either in a Chapter 11 or a Chapter 13, creditors can file proofs of claim and in essence, what they are saying is I want to get paid through this plan, this is how much the debtor owes me. But sometimes creditors file grossly inflated proofs of claim and I’ve had cases where creditors have filed claims that were barred by the statute of limitations. So, I have challenged those unacceptable claims. That’s generally not done via an adversary proceeding. Instead it’s generally done through what’s called a contested matter. Those are generally the most commonly arising type of disputes in bankruptcy.
There can also be disputes over evaluation of property. One very powerful tool that is available to debtors is to strip off wholly unsecured second mortgage. Now, in this housing market, that is not happening a lot these days but in the past, when the real estate market was depressed, that was happening with some regularity and the catch here is if the real property in question is the debtor’s principal residence, then you can only strip off a wholly unsecured claim. You can’t bifurcate a claim into a secured and an unsecured portion. So, there can be value disputes, how much is that property really worth because the value of the property is going to determine whether that second mortgage really is wholly unsecure. There are other kinds of things that come up but those are really the main ones that we see.
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