Creditors’ Rights in Bankruptcy
Federal law allows a consumer or business to file for bankruptcy under certain circumstances. Although creditors have the right to repayment of their debt through the bankruptcy process, they often end up with less than the full amount that they are owed. It is vital that a creditor knows their rights at the outset of the bankruptcy process, so they can work to protect them to the fullest extent possible. They should consult with a creditors’ rights attorney to represent their interests throughout the bankruptcy process.
Chapter 7 Bankruptcies
A Chapter 7 bankruptcy provides for liquidation of the assets. It can be used by consumers or businesses. This type of bankruptcy would lead to debt being wiped out entirely. They would have the right to receive a portion of the debtor’s assets in proportion to their debt. A secured creditor has the right to be paid before an unsecured one would. A secured creditor may seize collateral and use the sale as proceeds towards repayment of the debt. Creditors can object to the discharge of individual debts in Chapter 7 bankruptcy.
Chapter 11 Bankruptcies
In Chapter 11 bankruptcy, the creditor may even have the ability to file an involuntary petition that could force the debtor into bankruptcy proceedings if they meet certain criteria. Creditors have the right to have their debts repaid when assets of the debtor are turned over to the bankruptcy court. The debtor would emerge from Chapter 11 with the money that they owe wiped out (assuming that the debt does not fall into one of the exceptions).
In the process, a creditor would have a fair amount of input in a Chapter 11 bankruptcy. The bankruptcy trustee would form a committee of creditors with whom they would consult during the process. The committee can monitor the debtor during the bankruptcy process and report any wrongful behavior that is inconsistent with their obligations under bankruptcy law. The creditors would be able to request an examiner in the case. They would even be able to have some input into the debtor’s future. They may even have input into whether a debtor company should be broken up immediately to repay the debts, or whether they can emerge from this type of bankruptcy. Lenders often prefer Chapter 11 bankruptcy because they get more immediate repayment of whatever they can recover.
Chapter 13 Bankruptcies
A Chapter 13 bankruptcy is a reorganization, as opposed to a liquidation. The debtor would have obtained a plan for restructuring and the repayment of their debts over time. The creditor has the right to repayment of the money they are owed over time, in accordance with the reorganization plan and their order of precedence. The creditor also has the right to participate in the bankruptcy process and the ability to be heard by the trustee. They have the right to object to any reorganization plan, depending on the facts of the case. Like a Chapter 7 proceeding, they also have the ability to object to the declaration of bankruptcy. They can also question the debtor at a mandatory meeting of creditors that is ordered by the court.
Contact a North Carolina Creditors’ Rights Attorney Today
The creditors’ rights lawyer at Crawford & von Keller can represent your interests when a borrower has not repaid the amount that they owe you. We can provide you with legal advice to help you prepare for a debtor’s bankruptcy and to help you vigorously participate in the process. You can visit us online or call us today at 803-790-2626 to speak with a creditors’ rights lawyer.
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