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What Rights Do Creditors Have When Debtors File For Bankruptcy?

The word “bankruptcy” may spell bad news for many creditors, but understanding their rights can help them prevent unnecessary losses. Both personal and commercial bankruptcy – Chapter 7, 11, 12 and 13 – leave room for creditors’ rights, depending on whether a debt involved collateral and on unique factors such as timing, priority rules and legal processes. The best thing a creditor can do to protect their rights in case of a debtor’s bankruptcy is to have access to legal counsel.

At The Cohn Law Firm, LLC, in Baton Rouge, we primarily help businesses stay ahead of the game when debtors’ potential bankruptcies threaten cash flow. Our lawyers can jump in at any time and help businesses limit or prevent losses to bankruptcy through a variety of means.

Things That Creditors Can Do To Prevent Losses Through Bankruptcy

In 341 creditors’ meetings, debtors who are filing for bankruptcy meet with a trustee or a representative of the United States Trustee program to answer questions about their assets and bankruptcy petitions. Although few creditors attend these meetings, they have the right to do so.

When creditors who are our clients receive notice that a debtor has filed for bankruptcy, our attorneys can advise them as to whether attending the 341 hearing may be beneficial. In some cases, it may make sense for a creditor to challenge a debtor’s right to discharge debts.

As a bankruptcy case progresses, a debtor may need to liquidate assets. Creditors have the right to introduce justification for the possible liquidation of a debtor’s nonexempt assets in a Chapter 7 bankruptcy.

In a Chapter 13 bankruptcy, a creditor may ask the representative of the United States Trustee program for consideration of the debts owed to them as the debtor’s repayment plan is in the planning stages.

Unsecured creditors have the right to expect their rightful positions in light of the “absolute priority rule” in Chapter 11 bankruptcies. Depending on facts, this may mean that their debts should be paid in full or lower priority creditors should not receive any payment.

Even apart from bankruptcy, a creditor may retain the right to pursue repayment of debts – even when a debtor files bankruptcy – through legal tools that go along with secured debts. Examples include:

  • Deeds of trust
  • Mortgages
  • Security agreements
  • Judgment liens

When a loan involved collateral, the creditor may seek recovery of either the value of a debt or the respective collateral (such as a vehicle or a piece of land), whichever is worth less.

Our legal team can advise on risk prevention for your business either proactively or in response to customers’ pending bankruptcies. To request advice for your business in terms of customers, creditors, collateral and other key factors, contact The Cohn Law Firm, LLC.

To Schedule A Consultation

Our attorneys offer cost-effective loss prevention counseling services. This approach may save your business a great deal right after a hurricane or another widespread disaster. Get our advice before your debtors begin filing for bankruptcy.

Call 888-339-7805 or email us to arrange to speak with a lawyer.