Are you a creditor and you just found out that your debtor declared bankruptcy? You probably find it confusing and you are not sure what you need to do next. We can help.
The first thing you need to do is to stop all collection actions immediately. By filing for bankruptcy, the debtor has several benefits. The most important is an “automatic stay”. An automatic stay stops all or most collection actions. Additionally, it will generally remain in effect until the bankruptcy court closes the case, dismisses the case, or grants the debtor a discharge. A creditor who violates the automatic stay could face fines, costs, attorney fees, and/or punitive damages.
Next, you will need to do is to determine the chapter of the bankruptcy code that your debtor is using to file for bankruptcy. The United States Bankruptcy Code contains many chapters. Debtors can file bankruptcy under a variety of chapters. I have listed the most commonly used Bankruptcy Chapters (below).
A liquidation under Chapter 7 is the most common form of bankruptcy in the United States. The purpose of a Chapter 7 liquidation is to have a trustee liquidate all assets and distribute the proceeds to creditors. Secured creditors are first paid out of any proceed distributions. After paying the secured creditors, if any proceeds are left in the estate, unsecured creditors are paid. Secured creditors are creditors who have a legal right against certain property in the estate. A liquidation under Chapter 7 is available to those whose income is less than the median of their state, or those who can pass a means test.
Chapter 11 allows a debtor to reorganize their debt so that the debtor may continue to operate. The goal of Chapter 11 is to allow the debtor to still operate rather than shutting down. Moreover, it is mainly used by companies, not individuals. The trustee may ask creditors to reduce the amount owed to them. The Chapter 11 plan, once confirmed by the court, requires the debtor to pay creditors either the full amount of the claim or a percentage of the amount owed from the profits of the corporation which continues to operate its business under the plan.
Chapter 13—Adjustment of Debts of an Individual
The purpose of Chapter 13 is to allow an individual to develop and implement a plan to repay his/her debts. Furthermore, the plan could call for full repayment or offer creditors a smaller payout to settle the debt.
Each of the bankruptcy statutes have numerous provisions. In many cases, an attorney can help sort out the details on what to do next.
The attorneys at Kind and Dashoff, LLC are experts at helping creditors through the bankruptcy process. They are available to help you collect your delinquent accounts.