Creditors’ Rights In a Bankruptcy

Bankruptcy provides relief to individuals and businesses burdened by debt with no realistic means to pay. Whether they are seeking to file Chapter 7, Chapter 11, or Chapter 13 bankruptcy, the petitioner will likely be allowed to have a significant portion of debt discharged, meaning that creditors can no longer legally demand that those debts be repaid.

During bankruptcy proceedings in New Mexico, creditors will have the chance to protect their legal and financial interests. They must be diligent, though, because they will have a narrow window in order to state and legally justify their interests before the case is concluded and the remaining debt is discharged.

In other words: moving too slow or acting on the wrong information, as a creditor, can greatly hurt your ability to assert your own legal rights.

New Mexico Financial & Family Law has over 50 years of collective experience representing parties involved in bankruptcy. If you are owed money by a person or a business that is filing for bankruptcy, we can provide you with strategic legal advice and representation in order to preserve your rights during a bankruptcy.

If you are ready to fight for the money — or other forms of relief — you feel you are owed, our law firm is here to help. Reach out to our offices today at (505) 503-1637 or contact us online to speak to a seasoned creditors’ bankruptcy attorney in your area.

How Can a Creditors’ Rights Lawyer Help Me When Someone Files for Bankruptcy?

All bankruptcy proceedings are governed by federal law. The uniform code provides many protections for both petitioners (also called debtors) and the creditors they owe money to. However, these laws are quite complex, and they can involve many procedures unique to the bankruptcy court.

Just as critically, most bankruptcy proceedings move quite fast. Petitions, hearings, and even special requests like a relief from the automatic stay are considered a matter of course. An unprepared creditor may see their window of opportunity to exert their interests fly by — unless they take steps to secure the help of an attorney to strategize and then move quickly.

Further, know that all registered corporations and partnerships acting as creditors must be represented by an attorney, unless they are merely filing a proof of claim or a simple Request for Unclaimed Funds.

The attorneys at New Mexico Financial & Family Law are highly experienced in handling bankruptcy matters, including both creditors and debtors. We are prepared to help you move fast when assessing your options and pursuing the legal strategies that have the highest chances of protecting your financial interests — or, at least, minimizing the losses you experience as a result of the bankruptcy.

Our creditors’ rights attorneys can represent you if you are a:

• Bank
• Private equity investor
• Private lender (“hard money” lenders)
• Credit union
• Trade creditor
• Any other type of individual or businesses owed money

Some of the most common services we provide to our creditor clientele include:

1. Filing a proof of claim;
2. Apply to the bankruptcy court to lift the automatic stay, to let your collection actions or foreclosure to continue;
3. Dismissing the bankruptcy case;
4. Converting the bankruptcy case to one under Chapter 7 (liquidation);
5. Apply to the bankruptcy court to allow recently delivered goods, that are not paid for, to be returned, or “reclaimed”;
6. Requiring the debtor to give the creditor regular “adequate protection” payments in exchange for using collateral;
7. Appointing a trustee or examiner to control or audit debtor’s business;
8. Conducting discovery and depositions, including what is called a “2004 examination,” which is a very broad discovery right unavailable outside of bankruptcy;
9. Objecting to Chapter 11, Chapter 12 or Chapter 13 plans;
10. Negotiating with debtor’s counsel over certain payment terms;
11. Negotiating alternatives to a reorganization plan, such as a structured dismissal or sale or surrender of assets;
12. Continuing a receivership in state court rather than being removed to bankruptcy court; and
13. Requiring the debtor to decide whether to cure (and become current) with a pre-existing agreement, or return the property.

Common Forms of Relief (and Other Legal Strategies to Seek) as a Creditor During a Bankruptcy

Federal bankruptcy laws are designed to give debtors a “fresh start,” but they also aim to hold debtors to the letter of the law and the confines of reasonable behavior. At the same time, creditors are supposed to be represented and given the opportunity to assert their own position during the proceeding.

Hiring a creditors rights bankruptcy lawyer ensures that you are well-prepared to represent your interest to the fullest extent possible. In fact, you can even begin working with a bankruptcy attorney in anticipation of a possible filing. Creditors are supposed to be notified of a bankruptcy, but this notice could be as simple as a small-print declaration in a newspaper. Because of the risk of missing this notice, it can make sense to initiate a relationship with a creditors rights lawyer once adversarial proceedings against the debt-holder begin. Your attorney can keep you informed of the debt-holder’s activities and help you prepare for bankruptcy proceedings the moment they do begin.

Some of the most common types of relief requested by creditors are listed below.

Relief from Automatic Stay

Those who file for bankruptcy are granted a blanket protection from collection actions known as an “automatic stay.” The stay legally bars any creditor from attempting to collect on a debt, sometimes including even making basic contact such as a phone call. Lasting the entire duration of the bankruptcy proceeding, the stay is often lifted only after all debt has been discharged.

However, creditors can request relief from the automatic stay in relation to specific collection actions, such as repossession or the collection of debt, in part or in full, in order to avoid some specific negative outcome.

Requesting a lift of the automatic stay requires a motion, a fee, and a hearing. The judge will expect specific justification for the request in accordance with strict legal standards. An attorney can assist with these proceedings.

Exception From Discharge

An adversary proceeding can allow creditors to contest the discharge of certain debts under specific circumstances. For example, if the debt was obtained using fraudulent statements or it was used for luxury purchases made within 90 days of the petition for bankruptcy, the debtor may still be required to pay it, making it exempt from discharge. Debts not listed on the petitioner’s declaration may also be exempted.

Creditors can contest discharge eligibility or request a specific exemption with help from an attorney.

341 Meeting of Creditors and Bankruptcy Hearing Attendance

Creditors have the right to ask questions and have their concerns heard at a 341 meeting. These meetings are scheduled towards the beginning of bankruptcy proceedings, and they are overseen by the trustee appointed to the case.

A 341 meeting gives creditors a unique chance to find out information directly from the petitioner and the trustee. Having an attorney represent you or attend this meeting with you can allow you to prepare for the opportunity and have your question and the petitioner’s responses entered into the formal record.

Creditors may even form a committee during Chapter 13 proceedings, allowing them to propose a repayment plan or object to existing ones.

An attorney can also attend bankruptcy hearings with you or in your place in order to stay abreast of the most current information or have your motions entered into the case to protect your interests.

Evictions for Non-Payment

Automatic stays may be able to prevent someone from being forced to move out of their home, whether they own it on loan or are currently renting. However, as the New York City Bar Justice Center explains, “the automatic stay provision of the bankruptcy code does not apply to eviction proceedings in which the landlord has obtained an eviction judgment prior to the filing of the bankruptcy case.”

You may be able to force the petitioner to vacate the unit or foreclose upon their home with the help of an attorney. Debtor’s may fight these actions, though, so prepare for a possible contest between interests if the debtor wants to claim hardship and ask for further relief.

Non-Bankruptcy Claims for Outside Payment

Bankruptcy petitioners are not allowed to purposefully transfer money or assets for the purposes of shielding these assets from possible liquidation during a bankruptcy. The act of making such a transfer is considered a fraudulent conveyance.

Likewise, petitioners are not supposed to repay specific debts to the exclusion of others immediately prior to filing for bankruptcy. Such an act represents unfair favoritism, as the court is supposed to determine repayment priority, and all creditors in a single tranche of priority are supposed to be paid pro rata according to the size of the debt owed.

Creditors can contest any transfers or preferential payments to ensure that bankruptcy petitioners are not trying to take advantage of the courts or the people to whom they owe money.

Asserting Your Right to Repayment or Liquidated Assets for an Unpaid Claim

If you are entitled to relief from the debtor’s liquidated property or a reorganization and repayment plan, an attorney can help you secure the rights to those funds as part of the bankruptcy agreement. Your attorney can also help you resolve disputes in cases where one or multiple liens affects the ability for a property to be claimed.

Reaffirmed Debt for Secured Property

Secured debts are not supposed to be discharged at the conclusion of a bankruptcy. If they are, a creditor may be able to have the debt reaffirmed by the court, making the debtor responsible for paying it while giving the creditor the opportunity to repossess or foreclose.

Work With Experienced, Efficient, and Assertive Attorneys to Protect Your Interests as a Creditor

The bankruptcy system is supposed to be fair, and it’s designed to prevent abuses by debtors. Creditors have the chance to argue for a fair outcome while taking steps to minimize the negative impact the bankruptcy has on their own bottom line.

An attorney at New Mexico Financial & Family Law is ready to listen and to help you if you are owed a debt by someone who has filed — or who may soon file — for bankruptcy. Learn more during a confidential consultation when you call (505) 503-1637 or contact us online.