Supreme Court Says We Should Read Our Mail? Whaaa?

April 2, 2010

Well at least as it applies to the Creditors in bankruptcy cases. You know who Creditors are: banks, credit cards, auto finance companies, school loans, your account (just kidding).

2 weeks ago a unanimous Supreme Court concluded that bankruptcy creditors ought to read their mail once in awhile. Perhaps even pay attention and act upon what they read there. Otherwise, they have only themselves to blame. Seems pretty straightforward, no?

This decision involved a rather straightforward case.

A man filed a Chapter 13 plan in 1993. He included a provision in this plan that would discharge the interest on his student loans — something that normally would require he prove undue hardship through an adversary proceeding. He mailed a copy of this plan to the lender. The lender filed a claim asking to be included in the case but did not object to the plan. So the court approved the plan. The consumer completed his plan, received his discharge and that should have been the end of it. He walks away and thinks all is fine.

But the student loan lender did not agree and sought a ruling from the courts that it should not be bound by the plan. It admitted it received notice of the case and a copy of the plan. It just apparently didn’t read the plan. So several years later, it wanted to go back and “fix” the problem. (NOTE: Does this seems fair to you? Yeah, me neither, but read on . . .)

The Supreme Court disagreed. It said, in effect, the federal rules allowing a party to a case to set aside “void” judgments or decisions should not be used in this way. And this is true, even where the debtor has included a provision in the plan which would normally not be allowed. If the creditors, the trustee and the court do not object, it will be binding on the creditors who receive actual notice and sleep on their rights.

Of course, for most people it doesn’t take the Supreme Court to tell you to pay attention to legal mail. Many children and most adults could grasp this simple logic. But the irony is that multi-billion dollar companies would prefer the courts change the rules so that carefully reading the fine print of documents sent by consumers is not required.

Now, the Chapter 13 trustee has to read the plan, so why wouldn’t the creditors try to get her to absorb the extra costs of objecting to “inappropriate” plans? Could it even happen?

In this case the non-readers Citibank, Chase and Wells Fargo got beat up in court by a single bankrupt consumer and his lawyer.

Kara O’Donnell, Esq.
Quincy, Massachusetts

Posted by Kara O’Donnell


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