Creditor Rights

Creditor's rights are substantially affected by a debtor filing any chapter of bankruptcy. Each type of bankruptcy affect creditor's rights differently. Creditors and their counsel should develop an overall strategy for the case. There are very short timeframes for creditors in bankruptcy, so it is also important to be sure that you comply with your obligations so that you do not lose any of your rights. Your strategy will depend upon your status as either a secured, unsecured, or oversecured creditor. Examples of some strategies and time frames are as follows:

Secured Creditors

Some Important Dates

  1. Motion for relief from stay
    1. Calendar times from notice of 341(a) meeting
    2. Read Docket
    3. File proof of claim within 90 days after first date set for 341 meeting (Ch. 7,12,13)
    4. Deadline to object to discharge is 60 days after first date set for 341 meeting
    5. Deadline for nondischargeability complaint for fraud, fiduciary misconduct, or willful
  2. Motion to dismiss for abuse or bad faith
  3. Motion to restrict the use of your cash collateral
  4. Motion to receive a trustee or examiner
  5. Find a buyer for your collateral
  6. Sue to deny the debtor’s discharge
  7. Sue to determine that your debt is nondischargeable
  8. Move to shorten exclusivity period (Ch 11)
  9. Object to plan and disclosure statement (Ch 11-13)
  10. Vote for or against a plan
  11. Make an election to keep lien
  12. Sue guarantor of your debt
  13. Sue general parties
  14. Propose your own plan

Unsecured Creditors

  1. Vote to appoint your own trustee
  2. Motion to dismiss or convert the case
  3. Seek help from US trustee
  4. Sue to deny discharge
  5. Sue to determine dischargeability
  6. Motion for Chapter 11 trustee or examiner
  7. Ask to join or set up a creditor’s committee
  1. Chapter 7: "Chapter 7 Bankruptcies are liquidation bankruptcies. The debtor is attempting to discharge all of their debts if the debtor is an individual. In a corporate chapter 7, the debtor is trying to have the trustee marshal its assets so that it pays its creditors fairly. In order to have a claim in a Chapter 7, the creditor must file a claim in the Chapter 7 Bankruptcy. This would include all types of creditors and interest holders. There is usually a claim’s bar date, and you as a creditor must make sure to file your claim timely or else you will not obtain your rightful priority or by failing to file a claim at all, you may not get paid even though you are entitled to it.

    Creditors also have rights to object to a Chapter 7 because the debtor may not be qualified or because an individual doesn’t pass the means test or that the case may be forced to be converted to Chapter 13, where you can share in the debtor’s income for three to five years. There is also a time limit on filing of objecting to the discharge of the debtor because of their game playing in the Bankruptcy Court, for example, by failing to list all of their assets or for improper transfers before or after the bankruptcy is filed. There are also claims for fraud or improper fiduciary actions or willful destruction of property. The debt may be non-dischargeable. These types of debts require that a complaint be filed in a timely manner or filed within 60 days from the 1st day of a meeting of creditors or they will be forever barred. It is imperative that you look at the type of debt that you have and see if there is an exception to the discharge.

  2. Chapter 13: "Chapter 13 plans have to be proposed in good faith and there are technical rules that need to be complied with. A creditor has a right to object and make sure that they get everything that they are entitled to. It is important to remember that there are short timelines. This would also include family law debts which may not be affected in a Chapter 7 but can be discharged in a Chapter 13. These would include breach of fiduciary duty or fraud claims against a spouse, and these would be lost if a complaint is not filed within 60 days of the meeting of creditors, or as ordered by the court (whichever is first).

  3. Chapter 11: "In Chapter 11 bankruptcy, a debtor usually proposes a specific reorganization plan based on their financial circumstances. The plan can be objected to if it does not treat its creditor in a fair and organized way. Further, creditors have the ability to vote. Similar to other types of bankruptcy, there are short time limits for fraud, fiduciary misconduct, willful destruction-type debts and these types of debts need to be filed timely or they are forever barred even in a Chapter 11.

  4. Secured Creditors: "Creditors who have liens on property including deeds of trust or purchase-money security interests in vehicles have special rights in all chapters of bankruptcy. Collection efforts are stopped because of the automatic stay when a bankruptcy is filed and our firm will help you obtain relief from that stay and make sure that your rights as a secured creditor are protected. There are special rules for single asset real estate cases which require payments within 90 days.

    If you are a creditor and a bankruptcy has to be filed, you should immediately contact a competent bankruptcy attorney to discuss your rights and possible remedies so that you don’t lose out on entitled claims because of short timelines. Please contact our office for a free initial phone consultation.