What is Bankruptcy?
If you’re a creditor and the person or business owing you money has declared bankruptcy, it’s crucial to identify which type of bankruptcy they have filed under. Each type is specified in a different chapter of the U.S. Bankruptcy Code:
Chapter 7
Known as liquidation bankruptcy, Chapter 7 involves selling the debtor’s non-exempt assets to settle debts. It’s the most frequent form of bankruptcy for both individuals and businesses.
Chapter 13
This form is a reorganization bankruptcy intended for individuals and sole proprietorships. Unlike Chapter 7, it allows debtors to keep their assets and pay off debts through a structured repayment plan over several years.
Chapter 11
Similar to Chapter 13, Chapter 11 is also a reorganization type but is primarily used by businesses, including partnerships, corporations, and LLCs, to restructure and pay off debts while continuing to operate. There is also a streamlined version known as Subchapter V for smaller businesses, applicable if the outstanding debt is below $7.5 million.
Not all debts may be discharged through bankruptcy; obligations like alimony, child support, and student loans (unless the debtor demonstrates undue hardship) are typically not eliminated.
Creditor Rights During Bankruptcy Proceedings
When a debtor files for bankruptcy, it doesn’t mean that creditors are without rights or options. On the contrary, creditors are afforded specific rights and protections under bankruptcy law to ensure fair treatment during these proceedings.
Understanding the following rights is essential for creditors looking to navigate the process effectively and protect their financial interests:
Filing a Proof of Claim
Creditors should file a proof of claim to establish their right to receive a distribution from the bankruptcy estate. This document outlines the amount the debtor owes and the nature of the claim (secured or unsecured). It is essential to participate in the distribution of debtor’s assets.
Attending the Meeting of Creditors
Creditors have the right to attend the creditors’ meeting, also known as the 341 meeting, which allows creditors to question the debtor under oath about their finances and the circumstances surrounding the bankruptcy.
Objecting to the Discharge
Creditors can object to the discharge of the debtor’s debts if they believe the debt was incurred through false pretenses, fraud, or if the debt arises from willful and malicious injury to another party or property. This objection must be filed within a specific timeframe, typically 60 days from the first scheduled meeting of creditors.
Objecting to the Dischargeability of Specific Debts
Some debts may be nondischargeable if they meet certain criteria under the Bankruptcy Code. Creditors can file an adversary proceeding to have these debts declared nondischargeable.
Reaffirmation Agreements
If a debtor wishes to keep certain collateral (e.g., a car or house), they may agree to reaffirm the debt, which means they continue to owe the debt despite the bankruptcy. Creditors can negotiate reaffirmation agreements with the debtor to ensure that they continue to receive payments.
Participating in the Reorganization Plan
In Chapter 11 and Chapter 13 bankruptcies, creditors have the right to vote on whether to accept or reject the debtor’s reorganization plan. They can also propose their own plans in Chapter 11 cases.
Monitoring the Bankruptcy Process
Creditors have the right to monitor the bankruptcy process and review filings and documents that are part of the bankruptcy case. This ensures transparency and that the debtor complies with the bankruptcy laws and procedures.
Seeking a knowledgeable bankruptcy lawyer can help creditors assert their rights effectively and maximize their potential for recovery. At TOSC, we provide guidance through each step, from filing claims to negotiating payment plans, ensuring that creditors are well-represented and their claims are properly addressed.
Speak With the Bankruptcy Lawyers at TOSC Today
Seek the representation of the experienced bankruptcy lawyers of Taylor Odachowski Schmidt & Crossland, LLC (TOSC) to significantly improve your ability to assert your rights and navigate the legal process. Our legal team assists you in filing timely and accurate claims, objecting to discharges when appropriate, negotiating reaffirmation agreements, and ensuring your interests are represented in reorganization plans.
Contact our bankruptcy lawyers today at (912) 634-0955 or fill out our contact form to ensure your interests are protected and maximized throughout bankruptcy proceedings.
