Category Archives: Notice of Possible Dividend and Bankruptcy

I Received A Notice of Possible Dividend, What Now?


The vast majority of Chapter 7 bankruptcy cases are no asset cases.  This means that the person filing for bankruptcy protection does not own assets that cannot be protect and kept.  California has two sets of exemptions that protect assets, or exempt them from the bankruptcy estate that is created when filing bankruptcy.  But what if someone owns $75,000 in stock or bonds and has $150,000 in debt.  There is no exemption to protect $75,000 in a normal stock trading account.  If this person files for a Chapter 7 bankruptcy a portion of the stock can be protected depending upon the circumstances and the rest will be part of the bankruptcy estate to be paid to those who are owed money.

This process is started by the Chapter 7 Trustee appointed to administer the bankruptcy estate filing a “Notice of Possible Dividend” (NPD) to all they creditors listed in the bankruptcy petition that are owed money.  The NPD is filed to give notice to everyone that there could get some of their money back from the bankruptcy filer.  The money or amount received is called a dividend.  The NPD requests that creditors file proof of claims, or proof of the amount they believed they are owed by the bankruptcy filer.

This may seem like a straightforward process, but there have been lawsuits proving that creditors have filed fraudulent claims to get paid more than they are actually owed.  The claims process includes procedures for objecting to a claim for payment that is made.  Proofs of claims are supposed to include documentation that proves the amount that is owed at the time the bankruptcy case was filed.  Unfortunately many claims are filed will a simple summary of the accounting that proves nothing.  Anyone can write numbers on a piece of paper and attach it to the claim.  It proves nothing and should be objected to.  If you believe a creditor in your bankruptcy case filed a fraudulent claim you need to tell your bankruptcy lawyer to object to it.

Sometimes a trustee files a NPD because the merely think there are assets available to creditors.  Once they file the NPD they will then further investigate the value of the bankruptcy filers assets and determine if in fact creditors can or should receive a dividend.  This is okay as long as the trustee actually does something after filing the NPD.  What if a trustee files a NPD and then does nothing?  This is a very troublesome occurrence and should never happen.  When this happens creditors waste valuable time and money filing claims for nothing.  The bankruptcy court cannot sign the order of discharge or close the bankruptcy case.  If this has happened in your bankruptcy case you need to consult your bankruptcy attorney regarding what can be done about it.