What do I do When I’m a Creditor in a Bankruptcy?

Creditor’s rights are the laws to protect the entitlement of creditors/lenders to collect the money they are rightfully owed.

Before recommending a course of action, when a bankruptcy is filed, the creditor’s lawyer will evaluate the specifics unique to the debtor’s bankruptcy and their debt to you (as well as others).  Pre-bankruptcy creditors have the right to one or all of the following:

  • Put a lien on a debtor’s property or effect a forced sale of the property and seize it.
  • Effect a garnishment of the debtor’s wages to recover the amount of the debt.
  • Seize assets acquired by the debtor including filing lawsuits (against individuals and/or businesses).
  • Foreclose homes or other real estate if the debtor defaults on payment
  • Recover possession acquired through secured loans, such as vehicles, if the purchaser defaults on payment

The ultimate success or failure of collection efforts almost always depends on the quality of the written agreement between the creditor/lender and the debtor.

At the first hint of financial distress in your debtor/borrower you should have legal counsel review your documents to ensure that your interests are properly protected.  After a bankruptcy is filed, it is usually too late to fix your documentation.

Important Considerations

Prior to engaging the service of counsel, creditors need to consider the particulars of the debt, such as how much is at stake and what kind of claim the creditor has.  A secured claim is more likely collectable than an unsecured claim.  In the event of a bankruptcy, subject to the automatic stay, a secured creditor can enforce its security interest against the assets of the debtor.  Unsecured creditors are required to compete for a distribution on liquidation.  In addition, the type of bankruptcy will define the creditor’s rights and define the complexity of the bankruptcy

A measured review and comprehensive discussion with legal counsel will determine if the creditor should devote the time, effort, and financial resources trying to recover in a bankruptcy case.

Timing is Everything

When you receive a notice of bankruptcy relating to one of your customers, prompt action is critical as bankruptcy timelines are very brief and deadlines are strictly enforced.

The creditor’s attorney will first determine all deadlines that are applicable to the case to ensure that all creditor’s legal actions are undertaken by due dates.  Deadlines will vary between the types of bankruptcy and will include a Proof of Claim deadline; plan exclusivity period expiration date, if applicable; deadlines for filing objections to discharge; deadlines to object to exemptions; and many more.

Bankruptcy cases are dynamic, not static

On a timely basis, the creditor’s attorney will consult with the client regarding the current status of the case, as well as keep the client abreast of tactical opportunities and options as they become available.

For example, the bankruptcy may be dismissed due to the debtor’s failure to comply with Code requirements, in which case creditors are free to pursue collection of their loan.  A case may also change in classification, such as from a “no asset” case to an “asset” case if assets are uncovered from which a debt can be paid.

Once the creditor decides that there is enough at stake to pursue collection of the debt in the bankruptcy case, the key to success is in being proactive—there are plenty of tools available for the well-documented creditor to recover much of what is owed to them.

At the Law Office of George “Dave” Giddens, P.C. our attorneys serve Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. And we have bankruptcy attorneys who offer expert handling of Chapter 7Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases in New Mexico. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Our conveniently located office has ample free parking and is easily accessible by public transportation. We offer flexible office hours upon request. To make an appointment for a consultation about your real estate matter, contact us online by visiting the firm’s website at giddenslaw.com. or call us at (505) 271-1053. Giddens & Gatton Law,amp; P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico