6 Ways Attorneys Can Assist Creditors in Bankruptcy Actions
Filing bankruptcy is an incredibly powerful tool for both individuals and businesses who are struggling to pay their debts. It can provide much needed relief and a fresh start when your financial situation deteriorates beyond your control.
However, while filing bankruptcy may be a blessing for debtors, it is one of the last words that any creditor would want to hear. Creditors are those to whom the debts are owed, and bankruptcy oftentimes results in their inability to collect on the money they have lended to the debtor.
Filing bankruptcy immediately forces all creditors to cease any and all attempts to collect the unpaid debts. This is known as the “automatic stay.” Depending on the chapter of bankruptcy that the debtor filed for and the priority the creditor’s claim has over other creditors, they may then receive payment from the liquidated assets of the debtor (Chapter 7) or from a payment plan derived through a reorganization of the debts (Chapter 13 for consumers, Chapter 11 for businesses).
In either case, however, the creditor will usually be unable to recover all, if any, of the debt they are owed.
Lending money is a business, and like any business, those who operate it have a right to protect their interests and to an equitable resolution to financial disputes. While bankruptcy is certainly not advantageous from a creditor’s perspective, creditors do have rights which a skilled bankruptcy attorney can help protect and enforce when a client who owes them money files for bankruptcy.
In this blog we have detailed six ways an attorney can assist creditors in bankruptcy cases:
1) Conduct cost/benefit analysis
An attorney can help you analyze the priority of your claim in order to help you decide whether it would be financially beneficial for you to pursue action against a debtor who has filed bankruptcy. Creditors are paid in bankruptcy in order of priority based on the type of debt, starting with secured creditors, then priority unsecured creditors, then general unsecured creditors. You must decide whether you want to fight a bankruptcy filing based on weighing the cost of litigation versus your likelihood of getting paid through the bankruptcy.
2) Analyze chances of relief against automatic stay
Your attorney will be able to advise you on your chances of being granted relief against an automatic stay, allowing you to continue to pursue collection of the debt. Secured creditors will have the best chance of being granted relief.
3) File Proof of Claim
Any creditor who has a claim to an unpaid debt from a person or business who has filed bankruptcy must file a Proof of Claim in order to ensure their claim is considered in the bankruptcy process. There are strict deadlines and guidelines for filing a creditor’s proof of claim, and an attorney will help ensure it is properly handled. Without a proof of claim, you will not receive any distribution from the bankruptcy.
4) Adversary proceeding for nondischargeable debt claims
Most debt is entirely discharged from the debtor following the completion of the bankruptcy process, but some debts are considered non-dischargeable and will remain active after the case is finalized. Examples include alimony debt or debt incurred through fraud. Also, some debts fall into a gray area between dischargeable and nondischargeable, and in such cases it is necessary for the creditor to file an adversary proceeding meant to prove the debt is non-dischargeable and preserve their claim to the debt after the bankruptcy is finalized.
5) Work with bankruptcy trustee to protect your interests
Your attorney can work directly with the bankruptcy trustee who is administering the bankruptcy in order to ensure that the debtor is not attempting to hide assets or abuse the system to your detriment.
6) Stay on top of the case
Bankruptcy proceedings can take a long time, and you likely have better things to do than be constantly following the case. Your attorney will stay on top of the case for you, so that if the debtor fails to adhere to court-ordered aspects of the bankruptcy, and the bankruptcy is dismissed, you will know that you can begin attempting to collect once again.
If you are a creditor who has issued loans that have entered bankruptcy, please call the business and bankruptcy law office of Maxwell Dunn today and let us fight to protect your right to collect on those outstanding debts.