What rights and remedies does a creditor have in the bankruptcy case?

remedies rights creditor rights

A creditor has the basic right to receive a fair share of your non-exempt assets in a Chapter 7 case and to be treated fairly in a Chapter 11, 12, or 13 case. A secured creditor (i.e., one who has a lien on your property to secure the debt you owe) has a lien on the property that secures the debt.

Certain debts are not discharged in bankruptcy. A creditor holding such a debt may (and sometimes must) commence an “adversary proceeding” before a court-established deadline (usually about 60 days after the 341 meeting or first meeting of the creditors) to obtain a ruling that the debt will not be discharged.

In a “no-asset” Chapter 7 case, there are no non-exempt assets. Most unsecured debts will be discharged. Therefore, the only creditors who will actually participate in the case are the ones who hold security. They may file motions for relief from the automatic stay in order to foreclose on their loans or repossess the property securing the loans. The court generally holds a hearing on such a motion at which the debtor can contest the proposed action.

In an “asset” Chapter 7 case, there are non-exempt assets that the trustee will sell. The trustee will deduct a fee for his services and distribute the remainder among your unsecured creditors based on a priority scheme contained in the Bankruptcy Code. Creditors will be told to file proofs of claim with the court in order to participate in this eventual distribution. Properly filed claims are presumed to be accurate, which means that the creditor need not actually prove you owe a debt unless someone objects.

In cases under other chapters of the Bankruptcy Code, the debtor must look out for his/her own interests when it comes to claims by creditors. Creditors may file claims, and it will be up to the debtor to object if the claims are not accurate.

(Reviewed 11.3.08)