Rights of Creditors in a Bankruptcy

Entitled To

• As a creditor, you are entitled to share in the distribution of funds through a chapter bankruptcy. In a Chapter 7, any money from an asset sale is distributed to secured debt creditors first and then unsecured creditors if any money is left. In Chapter 13 and 11 bankruptcies, secure debts are paid before any unsecured debts; holders of unsecured debt could possibly receive a small portion of debt as payment.
  
  

Cease Collection Action

• As a creditor, you must stop all collection calls, mailings and lawsuits. The debtor is protected by what is called an automatic stay after the bankruptcy is started. You will have an opportunity to discuss any concerns concerning the debt with the chapter trustee after all paperwork is filed in bankruptcy court.
  
  

File a Claim

• The creditor can file a claim, called a proof of claim, after the clerk of courts office notifies you. The proof of claim will tell the court that you have a claim against the debtor. This time-sensitive matter must be taken care of before the deadline outlined by the clerk.
  
  

Discharge or Not

• You will have the right to decide if your claim can be discharged. There are some claims that are not accepted, such as debts resulting from a drunken driving damage complaint, acts of malicious conduct by the debtor, fraud or debts occurring through a divorce. As a creditor, you can challenge a discharge.
  
  

Secure Debts

• Creditors who have secure property have the right to take back the property or receive money from any asset sales conducted by a trustee of the bankruptcy for a Chapter 7 or be paid through the restructuring payment plan of a Chapter 13. The creditor can take back homes, buildings and vehicles instead of money payments.
  
  

Communication with Trustee

• The creditor has the right to discuss any concerns with the trustee regarding the debtor's assets. If a creditor feels that the debtor is not presenting the entire story about property in a bankruptcy, a creditor can relay this information to the trustee in charge. A creditor has the right to have the debtor present at a hearing of creditors and question the debtor.
  
  

Follow the Case

• Follow the case closely and make sure that as a creditor you are kept up to date on all court hearings and changes in debt status; make sure that you respond to all inquiries in a timely manner. Some bankruptcies are dismissed for one reason or another, and then the creditor is free to pursue collection action on the debt.