Bankruptcy is a process by which consumers or businesses can eliminate or repay some or all of their debts under the protection of the federal bankruptcy court. If you’ve received a notice from a bankruptcy court that a person or business that owes you money has filed for bankruptcy, you might assume you don’t have any rights throughout the process but that is far from the case.
The first thing a creditor must know about bankruptcy is that the filing of a bankruptcy case by a debtor creates something called an “automatic stay” which is an automatic injunction to stop collection actions from all creditors. As a creditor, it is possible to file a motion with the bankruptcy court to request the court grant you “relief from the automatic stay” to resume with collection or litigation actions. It is very important a creditor seek relief from the stay in order to proceed against debtor, once that debtor has filed for bankruptcy. The bankruptcy court can impose hefty sanctions on a creditor found in violation of the automatic stay so it is important to consult an attorney before taking an action that might violate the stay.
As a creditor you have a right to participate in the bankruptcy process, review the documentation filed by the debtor in regards to his assets and liabilities and speak with the trustee regarding the administration of the case. If you feel the debtor has been untruthful about his assets, you have a right to bring that to the attention of the trustee and the court
After a debtor files a bankruptcy petition, a meeting of the creditors will be set which all creditors have a right to attend. At this hearing the trustee assigned to oversee the case and any creditors who attend can ask the debtor questions regarding his debts and assets listed in the schedules.
In most bankruptcy cases a creditor must file a proof of claim and attach any supporting documentation regarding the claim in order to be eligible to receive payments from the bankruptcy case, if any are made.
If a debtor files for a Chapter 7 bankruptcy, the bankruptcy court will oversee the orderly liquidation and distribution of the debtor’s non-exempt assets based on the priority of the claims filed by creditors. If a debtor files Chapters 7, 11 or 13 bankruptcy the debtor will propose a plan to repay some or all of his debts over a specified time period in monthly installments. As a creditor you have a right to object to the plan if you feel the terms proposed by the debtor are unfair.
One important aspect of being a creditor in a bankruptcy case is identifying if the debt you hold is one that is eligible to be discharged. Certain debts are non-dischargeable but the creditor must speak up in the bankruptcy case and bring this to the attention of the court. This is important because there are specific deadlines a creditor must meet in order to file an objection to discharge a specific debt. As a creditor, it is wise to consult an attorney to determine if the debt you hold is one that is ineligible for discharge in a bankruptcy case.
It is also important to note that if you are a creditor and you have received word the debtor has filed for bankruptcy but you haven’t received any official documentation from the court, you can still be technically found to be “on notice” of the bankruptcy case and expected to comply with the automatic stay and all filing deadlines for proofs of claim, objections to discharge, etc.
As you can see, as a creditor in a bankruptcy case you have far more rights that you might have initially thought when you received notice of a newly filed bankruptcy case. I would recommend hiring an attorney to help you preserve all of those rights and guide you through the process of the bankruptcy case, which heavily driven by rules and deadlines.
If you have any questions at all about your rights as a creditor in a bankruptcy case you should contact Kayla R. Hathaway, Esquire of the Rice & Rose Law Firm in Daytona Beach, Florida at 386-257-1222 or KaylaHathaway@riceroselaw.com