We know the struggle and fear of suddenly losing valuable wealth, whether business or personal, is heavy leading up to, during, and in the aftermath of a bankruptcy proceeding. There is a lot of information about debtors’ rights as it relates to bankruptcy law, but if you were a lender to an individual or business that is going through bankruptcy, you might be concerned about what rights, if any, you will have in this process.
Creditors have rights, even in the event of insolvency, and it is possible to reclaim value from a debtor. Regardless of the type of bankruptcy being filed, creditors are entitled to being heard, sharing in asset liquidation and redistribution, as well as challenging a debtor’s discharge. These actions can be navigated effectively with the guidance of our experienced and knowledgeable team.
If you were a lender to a party now involved in a bankruptcy proceeding, our firm is here to help you navigate your options. There are several things we will consider as we move forward in supporting you. We will first determine:
1. Which bankruptcy claim was filed (generally Chapter 7 or 13);
2. If your claim is secured or unsecured; and
3. The nature of the debts accrued by the debtor and all complexities of the specific case.
The following information will help orient you as you begin to navigate this system with us.
We provide guidance for creditors who are navigating any type of bankruptcy, including both Chapter 7 and Chapter 13 bankruptcy. Our clients have claims of all sizes and we are here to navigate the specifics of each with you. As a creditor, it is essential to know what type of bankruptcy the debtor is choosing because the recourse for debt collection and reparations of claims can be altered significantly. Most bankruptcy cases are filed as either Chapter 7 or Chapter 13 cases, which differ considerably in requirements and expectations of both creditors and debtors.
If the debtor you are seeking payment from files for Chapter 7 bankruptcy, this party is able to quickly discharge an unlimited amount of debt. However, all debts, paid or unpaid, are liquidated after immediate discharge of debts has been established. Debtors must qualify for this by passing the means test, which stipulates that a debtor’s income be below the state’s median income and establishes that a debtor does not have enough disposable income to repay the accumulated debts.
If a debtor files under Chapter 7 Bankruptcy, the court will order an automatic stay, which is an injunction requiring the cessation of all harassment, correspondence or repossession of assets. At this point, it is the court and legal counsel that will negotiate and determine reparations for insolvency.
Another common position you may find yourself in is if you are facing a debtor who has filed for Chapter 13 bankruptcy. Under this plan, debtors are required to resolve debts within 3-5 years, as stipulated in a reorganization plan. Debtors will be subjected to the supervision of a court-ordered bankruptcy trustee who will oversee debt repayment over time.
The legal rights of and potential reparations owed to a creditor are largely based on the type of claim a creditor has on a debt and its priority under the law. For instance, child care will always be prioritized by the court, while credit card debt will not. To understand what creditors can expect and what process they will need to navigate, it is essential to determine the type of claim, either secured or unsecured, the creditor is holding.
Secured claims are priority claims that are categorized as those that can be settled by the repossession of assets. Common secured claims include, but are not limited to, mortgages, judgement liens, car loan, a deed of trust, or a security agreement. In all of these cases, there exists collateral that can be recovered by the creditor in the case of bankruptcy.
When securing the claim, the value being replaced will be considered as the current value of the asset or debt at the time of bankruptcy, not the original value of the asset. Depending on the type of secured claim, however, the reparation for the debt may differ. For instance, in the case of a property lien, the debt will be settled by the lesser in value of either the payment of the value of the debt or by the reclamation of the collateral.
Clients with unsecured claims are the most vulnerable to debt liquidation and our expertise can provide guidance to this complex process. To the legal system, unsecured debt is the lowest priority. These debts are determined by the absence of a binding legal claim to an asset in the case of payment default. The most common forms of unsecured debt include credit card debt, student loans, medical debt and personal loans.
Navigating this type of claim will require the creditor to file proof of the claim and potentially attend the 341 hearing, or the meeting of creditors. From here, creditors are wise to review bankruptcy papers for accuracy and file objections when necessary. How you are represented matters most in these cases, particularly in accusations associated with the Truth in Lending Act (TILA) and legal counsel can help prepare creditors for this process.
It is also important to be aware of the “90-day rule” in bankruptcy law and how it affects creditors. This rule allows bankruptcy trustees to reclaim payment made to creditors within 90-days before the bankruptcy case was filed. To determine how this rule may impact your specific circumstances, you should seek the counsel of a bankruptcy attorney who is knowledgeable about creditors’ rights.
Our team of experienced bankruptcy attorneys are equipped to support you in your specific case so that you recover the payment you are entitled to. We provide skillful and dedicated legal expertise to help creditors navigate the uncertainty of a debtor’s bankruptcy and we will work with you to ensure reparations are met with accuracy and precision.