If you are a creditor in bankruptcy court in Texas, you may be wondering what your rights are and how you can protect your financial interests.
In this article, we will discuss creditors’ rights in bankruptcy proceedings, including:
- Secured creditors’ rights,
- Unsecured creditors’ rights, and
- How your bankruptcy attorney can help you to protect your rights as a creditor in bankruptcy court.
What are the Creditors’ Rights in Bankruptcy Proceedings?
Both secured and unsecured creditors have rights in bankruptcy proceedings, although secured claims and some other types of claims like child support take precedence. All creditors have the right to share in payments from the bankruptcy estate, but the trustee will distribute payments according to each claim’s priority.
What rights do secured and unsecured creditors have?
Secured Creditors’ Rights
Secured creditors may have priority claims based on secured collateral like:
- A deed of trust,
- A mortgage,
- A security agreement on personal property, or
- A judgment lien.
In Chapter 7 or Chapter 13 bankruptcy cases where debt is secured by collateral, the creditor’s rights may include:
- The right to be heard before the debtor’s nonexempt assets are liquidated,
- The right to be heard before the debtor’s repayment plan is approved,
- Challenging the debtor’s right to a discharge in bankruptcy,
- Payment of the lesser of 1) the full amount of the debt, or 2) the value of the collateral,
- Surrender of the secured collateral to the creditor,
- Repayment of the debt through a reorganization plan,
- Repayment of the debt outside of the reorganization plan,
- Preventing the debtor from accessing cash collateral,
- Compensation for a trustee’s use of secured property that lowers the property’s value, and
- Attorney’s fees and interest.
Unsecured Creditors’ Rights
Unsecured creditors have rights in bankruptcy proceedings, but unsecured debt is given the lowest priority by the trustee.
An unsecured creditor can:
- File proofs of claims,
- Attend the meetings of creditors,
- File objections to the discharge, and
- Review the bankruptcy papers for accuracy.
Below, we will discuss other ways that your attorney can help to protect your financial interests in bankruptcy proceedings for both secured and unsecured creditors.
Attorneys for Creditors in Bankruptcy Proceedings
Murray Lobb’s bankruptcy attorneys have been protecting creditors’ rights in bankruptcy proceedings in Texas and other states for over 30 years. Our clients have included financial institutions, builders, suppliers, equipment lessors, and other businesses seeking to protect their financial interests when debtors file Chapter 7 or Chapter 13 bankruptcy.
If you are a creditor in bankruptcy court, your attorney can help to protect your rights by:
- Filing proofs of claim for the debt you are owed,
- Challenging preference actions brought by the trustee,
- Preventing or recovering fraudulent transfers,
- Requesting relief from an automatic stay,
- Objecting to the discharge of certain debts, and
- Objecting to the confirmation of repayment plans that treat you unfairly.
Proof of Claim
If they want to get paid, secured and unsecured creditors must file a proof of claim in Chapter 7 and Chapter 13 bankruptcy cases within 70 days after the case was filed. The creditor needs to provide information including:
- The debtor’s name and case number,
- The creditor’s contact information,
- The amount of the debt,
- The basis for the claim, and
- Whether the claim is secured or unsecured.
In some cases, the bankruptcy trustee will bring a “preference action” to recover payments made by the debtor to a creditor before the bankruptcy petition was filed, but the creditor may have defenses to the preference action under 11 USC § 547(c).
For example, if the transfer:
- Was a contemporaneous exchange for new value,
- Was payment of a debt incurred in the ordinary course of business,
- Created a security interest for new value,
- Was less than $600 and the debts are primarily consumer debts, or
- Was less than $5000 the debts are not primarily consumer debts.
Fraudulent Transfer Litigation
Your creditor’s rights bankruptcy attorney may be able to help you prevent or recover fraudulent conveyances, whether the fraudulent transfer is 1) actual fraud committed to prevent the creditor from recovering what is owed to them or 2) constructive fraud where a transfer is made for grossly inadequate consideration.
Under 11 USC § 548, the bankruptcy trustee has the authority to avoid fraudulent transfers made within two years of the filing of the bankruptcy petition.
Automatic Stay Actions
11 USC § 362 provides for an automatic stay of actions against the debtor in bankruptcy, but creditors can request relief from the stay:
- For cause,
- When the debtor has no interest in the property,
- As to single asset real estate, when the debtor fails to file a plan of reorganization within 90 days, or
- As to real estate, when the bankruptcy petition was filed as part of a scheme to delay, hinder, and defraud creditors.
Objections to Discharge
Creditors can file an objection to the debtor’s discharge within 60 days of the creditors’ meeting. You will need to file an “adversary proceeding” and ask the court to find that the obligation is nondischargable.
Some examples of nondischargeable debt include:
- Recent credit card charges: large expenditures for luxury goods or services up to 90 days before the bankruptcy proceedings are filed may be presumed to be nondischargeable,
- Cash advances of $1000 or more from a creditor within 70 days before filing bankruptcy may be presumed to be nondischargeable, and
- Funds obtained from a creditor through fraud, misrepresentation, or false pretenses may also be nondischargeable.
A creditor can object to a debtor’s repayment plan by filing a confirmation objection in response to the proposed plan.
Creditors have a chance to review the proposed repayment plan, and, if the creditor is not being treated fairly, they can file an objection and present their reasons to the court at the confirmation hearing.
Please feel free to contact one of our Murray Lobb attorneys to obtain our legal advice regarding creditors’ rights in bankruptcy proceedings. We also remain available to help you with all your general business, corporate, and estate planning needs.