Tips to Protect Creditors in Bankruptcy

As a creditor, you may have received an official notice in the mail indicating that someone you know or that owes you money has filed bankruptcy.  In order to protect your interests, you should consider the following:

  1. Creditors’ Meeting and Debtor’s Deposition – By attending the creditors’ meeting, you can ask questions of the debtor under oath. You can also seek permission to take the debtor’s deposition.  Both of these options can provide invaluable information as you proceed through the bankruptcy process.
  2. Proof of Claim – As a creditor owed monies, you can file a proof of claim to ensure inclusion in the distribution of any non-exempt funds in the case.  In a Chapter 13, filing a proof of claim gives you an opportunity to share in the debtor’s repayment plan.
  3. Notice of Appearance – By filing a Notice of Appearance for the court, you as a creditor will receive every notice from the court concerning the actions of the debtor.
  4. Reports Review – As a creditor, you have the legal right to review Chapter 11 DIP’s monthly reports that have been sent to the US Trustee, after being file with the Bankruptcy Court.
  5. Automatic Stay – If you are a creditor with a security interest in any property owned or leased to the debtor, you can seek relief from the automatic stay, which would give you authority to begin or continue the foreclosure process, or to otherwise recover any property that has been leased by you.
  6. Investigate Claims – If you are a creditor that can provide necessary benefit to the estate in bankruptcy (after the filing, i.e. landlord rent claims), you might have a prioritized administrative claim over other creditors.
  7. Trustee Appointment – If the Chapter 11 DIP is found to be mismanaging the business or assets, as a creditor, you can seek removal of the DIP in favor of having a trustee appointed in the specific Chapter 11 case.
  8. Seek a Dismissal – If there is any just cause in the case, such as bad faith or qualification issues, you can seek a dismissal of the case. This can terminate the automatic stay and return the parties to their pre-bankruptcy standing.
  9. Properly Valued Collateral – As a creditor, you can ensure that property (collateral) included in a Chapter 11 or Chapter 13 case has been properly valued. In the event that the collateral is worth less than the amount owed, you might be entitled to a secured claim (with interest) along with unsecured claim for any deficiency that is not secured by the collateral.
  10. Proper Claim Treatment – Under Chapter 11 and Chapter 13, it is important that your claim is treated properly. If not, you have the legal right to object to the plan’s confirmation.
  11. Secured Creditor’s Collateral – A Chapter 7 debtor must declare their intention to retain or surrender your secured collateral. In some situation, the debtor may even be interested in reaffirming the debt secured by the collateral.
  12. Dischargeability of Debt – As a creditor, you can object to the discharge for debt owed to you. If the debt was incurred using a false financial statement, incurred by fraud, or incurred shortly before the bankruptcy filing, you may consider filing a non-dischargeability complaint within the 60-day period after the creditors’ meeting.

The information included herein consists of general guidance for creditors faced with protecting their interests in bankruptcy.  However, you should consult an attorney for clarification of and qualifications concerning how these principles apply in your particular case.

You can also find out more about these topics by downloading our Free E-Book “Bankruptcy 101” by clicking here.