Top Reasons Why You Should Pay Attention to the Petition Date!

By Nina Javan

The pandemic resulted in a surprising drop, rather than increase, in bankruptcies.  When examined a bit more deeply, the reason is apparent – a lot of government aid, in the form stimulus checks, unemployment benefits, moratoriums on evictions, PPP and EIDL loans, and more.  Now, as the country returns to its new normal, we are still experiencing economics stressors in the form of increased prices for housing, food, and fuel, not to mention the recent bank failures.  Meanwhile, the benefits that kept so many afloat have ended or are ending soon, and surplus funds that may have been accumulated due to government benefits are steadily being depleted.  All of this means that the next wave of bankruptcies is soon to start. 

With that in mind, it’s a good time for a refresher on the concept of the Petition Date.  The Petition Date is the date on which a voluntary bankruptcy is filed and functions as the “order for relief” in the bankruptcy case.  Upon the date, the automatic stay goes into effect.  The automatic stay is an automatic springing injunction against attempts to collect against the debtor for pre-petition debts, or to take control or possession of assets of the estate.  That is where the distinction between pre-Petition Date and post-Petition Date becomes important.  While you can send letters requesting that post-petition debt be paid, the automatic stay prevents such actions as to pre-petition debt.  That means that you need to look at the Petition Date and if the debt was incurred prior to that date, your letter disclosing the obligation cannot use language requesting payment and must include a bankruptcy “mini-Miranda” (i.e., language disclaiming the letter as an attempt to collect debt, which is something that you should have reviewed by counsel periodically).  If the debt was incurred after the Petition Date, then language requesting payment is acceptable.  However, while the automatic stay is in effect, realization upon any collection efforts (i.e., garnishment, liens, etc.) is not permitted even if it relates to post-Petition Date debt, because the automatic stay protects against acts to obtain possession or control of property of the estate or create, perfect, or enforce liens against the same.


The Petition Date can also cut in a creditor’s favor, however.  As a hypothetical example, suppose a Debtor files a Chapter 7 case and receives a discharge.  After receiving his discharge, he tries to bring a claim against his mortgage lender for allegedly failing to honor a modification agreement.  However, the alleged failure to honor the modification agreement occurred prior to the Petition Date, which means that the cause of action accrued prior to the Petition Date and was an asset of the estate, but the Debtor failed to list the potential claim in his bankruptcy schedules.  At this point, the creditor could contact the Chapter 7 trustee from the Debtor’s now-closed bankruptcy case and make an offer to buy the asset (i.e., the claim against the lender) for a comparatively low amount (comparatively low when compared to the Debtor’s demand).  Since it’s an estate asset, the Chapter 7 trustee has full control over its disposition.  This could lead to an expenditure of – for example – $25,000.00 plus attorneys’ fees for the lender, as compared to a potential judgment against the lender for $110,000.00, plus their own attorneys’ fees and those of the Debtor (as the prevailing party).


To conclude, as illustrated by the two examples above, whenever you see a bankruptcy filing in a member’s past, you should carefully scrutinize the relationship between the Petition Date and whatever other events have brought the member’s account to your attention, because it could effect both/either your obligations and your opportunities for mitigation of a loss.

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