How to Protect Creditors’ Rights When a Debtor Declares Bankruptcy

 Posted on February 07, 2023 in Creditor's Rights

Creditors have a right to take all reasonable measures to recover debts owed to them. However, debtors are also afforded with certain protections, and they may take steps to eliminate the requirement to pay certain debts by filing for bankruptcy. When a debtor declares bankruptcy, creditors should take the appropriate steps to protect their rights and determine how they can minimize their losses. The steps creditors can take in these situations include understanding the relevant provisions of the U.S. Bankruptcy Code, determining how different types of bankruptcy will affect creditors’ rights, contacting a bankruptcy trustee to discuss their rights as a creditor, paying close attention to any documents they receive from court officials or trustees, taking full advantage of all available remedies under state and federal law for recovery of their claims, and remaining in contact with their attorney throughout the bankruptcy process.

Understanding the Relevant Bankruptcy Laws

The U.S. Bankruptcy Code is divided into several core sections known as chapters. Each chapter provides guidance on different aspects of bankruptcy, including eligibility requirements, filing procedures, dischargeable debts, and more. In order for creditors to understand their rights when dealing with a bankrupt debtor, it is essential that they become familiar with the relevant provisions within these chapters. For example, creditors should be aware of the ways they can challenge a bankruptcy filing as well as their rights to file a proof of claim with the court.

Different Types of Bankruptcy

There are several different types of bankruptcy cases that can be filed by debtors, including Chapter 7 (liquidation), Chapter 11 (business reorganization), and Chapter 13 (debt reorganization/consolidation). Depending on which type of bankruptcy is filed by the debtor, creditors’ rights may be affected differently. For example, in a Chapter 7 bankruptcy, a debtor may be able to discharge certain debts, but some of their assets may be liquidated, and creditors may need to take steps to ensure that they receive the proper amount of these liquidated assets. In a Chapter 13 case, a debtor will make ongoing payments toward some of their debts for a period of three to five years, and creditors may need to ensure that these payments are applied correctly toward the debts that are owed to them. Because of the different issues that may affect them, it is important for creditors to understand the appropriate actions to take to protect their rights during a debtor's bankruptcy case.

Contacting the Trustee

In most cases involving debtors who are filing for bankruptcy protection under Chapter 7 or 13, a bankruptcy trustee will be appointed to oversee the proceedings and make sure all parties comply with applicable laws and regulations. As such, one of the first steps creditors should take when dealing with a bankrupt debtor is to contact the trustee directly so they can discuss their rights as a creditor and learn more about what steps they should be taking throughout this process.

Reviewing Bankruptcy Documents

One of the most important steps creditors can take during the bankruptcy process is reviewing any documents they receive from court officials or trustees. These documents may include notices of creditors’ meetings, requests for creditors to verify debts, notices of dischargeable debts, listings of a debtor's assets, and more. It is important for creditors to read through these documents carefully so they can be properly informed about their rights as creditors and determine what actions they need to take in order to minimize their losses.

Contact Our Illinois Creditors' Rights Lawyers

When dealing with a delinquent debtor, it is important for creditors to understand their rights in order to protect their financial interests. By taking the correct steps during bankruptcy proceedings, creditors can advantage of the available remedies that may allow them to recover debts. It is important for creditors to work with an attorney throughout this process to ensure they understand any changes in laws or procedures that could affect their claims. At Dimand Walinski Law Offices, P.C., our Chicago debt collection attorneys can assist with these matters, and we can help creditors take steps to protect their rights during bankruptcy proceedings. Contact us at 312-704-0771 to set up a consultation.

Sources:

https://www.law.cornell.edu/uscode/text/11/727

https://www.justice.gov/jm/civil-resource-manual-63-creditors-claims-bankruptcy-proceedings

https://www.nyeb.uscourts.gov/creditor-rights-and-responsibilities