Any debtor attempting to claim bankruptcy must file a petition listing all their creditors. After the filing, the Court sends a Notice for Bankruptcy to all the creditors listed on the debtor’s petition.
If you are a creditor, you should receive this notice in the mail. After you receive this notice, you have certain responsibilities in order to receive the most amount of the money owed to you.
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What Steps Should I Take After Receiving a Notice for Bankruptcy?
Every creditor receiving a Notice for Bankruptcy must immediately stop collection activities. An automatic stay for 90 days follows the filing for bankruptcy. This stay protects the debtor from collection activity during the bankruptcy process.
The stay also protects all the creditors during the process. Aggressive creditors or creditors with more money to facilitate quick collections are prevented from collecting so that the orderly process ensures the most fair distribution.
Failure to stop collection may jeopardize your opportunity to receive debt owed to you during the bankruptcy process and other penalties. Collection activities include the following:
- Direct communication with the debtor such as phone calls, emails, and letters.
- Sending bills to the debtor.
- Filing lawsuits in an effort to get your money or property of the debtor.
- Any repossession activities such as taking a vehicle or other property that is tied to the debt owed to you.
During this time, a creditor should prepare for their proof of claim if they have any. This is essentially a lawsuit against the debtor. The Notice of Bankruptcy will either provide a deadline for this claim or inform the creditor not to file the claim yet. Shortly after the filing, the debtor will be required to file their schedules.
This is a portrait of the debtor’s financial situation. As a creditor, you should review these documents to get an idea of how much money will be available for collection during the bankruptcy process and whether you want to continue your claim depending on the available money and your priority against other creditors.
What Can I Do If I Do Not Think the Debtor Should Go Into Bankruptcy or If I Want to Collect During the Automatic Stay?
As a creditor, you may file a motion for relief from the stay. However, there must be good cause, including a lack of protection for the creditor or that the debtor has no equity in the property and thus bankruptcy is unnecessary to reorganize their finances. Creditors can also request to repossess any secured property in this motion.
What Happens If I Did Not Receive a Notice for Bankruptcy?
Reasons why you did not receive a Notice for Bankruptcy include:
- The debtor used the wrong address for you;
- There was a problem with the mail; and/or
- The debtor left you off from the filing.
You may have to file a claim of proof to participate in the bankruptcy if you did not receive a Notice. If the debtor did not include you, you may be able to sue for the full amount owed.
However, if you do not participate in the bankruptcy, filing a lawsuit later can result in no recovery since all the debtor’s assets were taken and distributed during the bankruptcy. It is usually in the best interest of the creditor to file the claim and participate in the bankruptcy in order to get the most recovery.
How is Priority Determined During a Bankruptcy Claim?
Generally, all of the debtor’s disposable property and assets will be taken to satisfy the approved creditors. Secured debts are usually the easiest to compensate as they are tied to some piece of property in the possession of the debtor such as a car, house, or business equipment. Thus, those debts are usually the first priority.
Unsecured creditors with small amounts are usually at the bottom of the pile. Thus, take into consideration the amount of money available early in the process and your position relevant to other creditors before deciding to pursue a claim. You could end up with nothing or very little after the final decision.
Some debt can never be discharged in bankruptcy. This includes the following:
- Student loans
- Child Support
- Civil Damage Awards
Do I Need a Bankruptcy Lawyer?
It is recommended that you use a qualified bankruptcy lawyer to assist you in your claim. Bankruptcy cases involved a lot of forms and deadlines and it can be difficult for most people to manage their claim in the process. Additionally, other creditors will be looking to take as much as possible so you want an advocate that can look after your interest during the bankruptcy.