Creditor Representation

Bankruptcy Attorneys Serving the Santa Clarita Areas

If an individual or business that owes money to you files a bankruptcy, you need to take immediate action in the Bankruptcy Court to protect your rights. You cannot simply continue with normal collection procedures, as you may violate the automatic stay and be sanctioned. Even if you have a lien on property or a judgment, the bankruptcy might eliminate your ability to ever collect the debt owed to you.

If the amount owed to you is relatively small, it will often pay to investigate whether the holders of numerous small claims can combine efforts so that legal action on behalf of the group can be pursued economically.

Creditors who do not take action within the first 60 days after a bankruptcy case is filed can lose significant rights. Even if you did not know that your rights would be adversely affected, inaction will not be excused, and the debt can be discharged if critical deadlines pass without action.

Creditors in bankruptcy are of four general types:

1. Secured creditors: Secured creditors have rights to specific collateral that "secures" their debt. Common examples are mortgages and deeds of trust, vehicle loans, business loans secured by a UCC-1 financing statement, and "purchase money" loans on personal property such as computers or furniture. A creditor who has a judgment and has recorded an Abstract of Judgment is also a secured creditor.

2. Lessors: Landlords (as to real property) and leasing companies (as to personal property) have rights distinct from other creditors.

3. Priority creditors: Some unsecured creditors have priority in payment over the rest of the unsecured creditors because of the legal nature of their claim. These claims include: most taxes, domestic support (spousal and child support) obligations, wages (including salaries, commissions, vacation pay, and contributions to employee benefit plans), deposits for goods or services that were not provided, and debts for personal injury claims resulting from DUI violations.

4. Unsecured creditors: General non-priority unsecured claims are all other types of claims, such as credit card debt, personal and business loans, medical bills, and deficiencies after repossessed collateral is sold.

SECURED CREDITORS

Holders of secured claims are entitled to "adequate protection" of their interest. This means that unless there is a significant equity cushion in the collateral, over and above the amount owed to the secured creditor and senior lienholders, the secured creditor may be able to obtain relief from the automatic stay to be allowed to foreclose or repossess the collateral, or may be entitled to receive periodic adequate protection payments.

LESSORS

Debtors have the right to "assume" (i.e., bring current and maintain) or "reject" (i.e., walk away from) most leases and rental agreements. Generally, the lessor can compel payment of post-filing charges while the decision is made. If a lease is rejected, the lessor is entitled to receive possession of the leased property, and monetary damages for breach of the lease as an unsecured claim.

PRIORITY CREDITORS

Holders of priority claims need to make certain that the amount and priority of their claim is correctly scheduled by the debtor, or determined by the Court. Usually this is a simple matter, by filing a proof of claim. But since the debtor (and other creditors) have the right to object to a proof of claim, the proof of claim must sometimes be defended.

UNSECURED CREDITORS

Unsecured creditors should be certain that their claim is allowed in the correct amount. If there is a basis for objecting to the dischargeability of the debt (such as if the debt was incurred through fraud or conversion), the creditor can consider objecting to the dischargeability of the debt. If there has been misconduct in the bankruptcy case, such as by concealment of assets, a creditor has standing to object to the debtor's discharge.

For all creditors, the critical element is timing. Bankruptcy operates at a much faster clip than state court litigation. Moreover, personal service of process is not required. If you receive a notice in the mail, that is valid service.

If you receive a bankruptcy notice, or learn informally, that a person or company who owes money to you has filed bankruptcy, call our Santa Clarita bankruptcy attorneys immediately.