by Nicholas J. Daly, Esq.
Commonly, creditors are unsure of how to proceed after they receive notice that their debtor has filed for bankruptcy relief. This is a general overview of some of the issues that may initially arise for a creditor once a bankruptcy is filed. Since every case presents its own unique set of facts and legal issues, it is always important to contact your legal counsel.
1. Stop any on-going collection efforts and contact legal counsel.
In order to protect your rights when a bankruptcy has been filed, it is important to contact legal counsel as soon as possible. It is also important that attention is paid to the automatic stay that is imposed by the filing of a bankruptcy petition, which generally stops all collection efforts against the debtor and/or property of the bankruptcy estate.
A creditor’s willful violation of the automatic stay can result in the bankruptcy court awarding sanctions against the creditor, which may include actual damages incurred, including costs and attorneys’ fees, and even punitive damages. Needless to say, it is very important for a creditor to be cognizant of the filing of a bankruptcy and respect the automatic stay.
The “bottom line” is that, in order to avoid any potential violation of the automatic stay, you should immediately contact legal counsel when you receive notice that your debtor has filed for bankruptcy. This will give you a better chance of collecting debts and avoiding legal trouble.
2. Pay attention to deadlines.
The notice of the bankruptcy that you receive should include information regarding the first meeting of creditors and the deadline by which any objections to the discharge of certain debts must be filed (not all debts are discharged in a bankruptcy proceeding). Special attention should be paid to the deadline for filing proofs of claim and deadline to challenge the discharge of debts.
The initial notice of the bankruptcy may not include a deadline for filing proofs of claim; rather the notice may state that a separate notice for the filing of proofs of claim will be sent to you. However, a creditor is well-advised to file their proof of claim as soon as possible in order to avoid inadvertently missing the deadline for filing claims. Claims can be subsequently amended.
3. Make sure to timely file a proof of claim.
The Bankruptcy Code requires that an unsecured creditor file a proof of claim in a timely manner in order to be entitled to a distribution. A timely filed proof of claim is deemed allowed unless a party in interest objects to the claim (such as the trustee, another creditor, or the debtor). In the event an objection to a claim is filed, the Bankruptcy Court will provide the parties with notice and have a hearing to determine the amount of the claim that is to be allowed. You must make sure that your claim is timely filed and attach any documentation that supports your claim.
4. Attend the meeting of creditors if you have questions about the bankruptcy.
A useful tool for creditors in a bankruptcy proceeding is the meeting of creditors. The United States Trustee is required by the Bankruptcy Code to convene and preside at a meeting of creditors within a reasonable time after the bankruptcy is filed. This is not a formal court hearing and the Bankruptcy Court is prohibited from presiding or attending a meeting of creditors. The date of the meeting of creditors will be set forth in the initial notice sent to interested parties informing them of the bankruptcy filing. You may want to mark this date on your calendar when you receive the notice.
The debtor is required to appear at the meeting of creditors and to submit to examination under oath (much like a deposition). The scope of the examination is limited by Rules of Bankruptcy Procedure, which generally limit the scope of examination to the assets, liabilities, and financial condition of the debtor, or any matter which may affect the administration of the bankruptcy estate or the debtor’s discharge. The meeting of creditors is a good opportunity for creditors to listen to questions asked by the trustee and also have an opportunity to ask their own questions of the debtor (within the scope permitted by the Bankruptcy Rules). This is often an underutilized opportunity for creditors to obtain more information about the bankruptcy case.
Nicholas J. Daly is an attorney with LEWIS REED & ALLEN P.C. His legal practice focuses on litigation, bankruptcy, creditor’s rights, landlord-tenant, and municipal matters. If you have questions or would like to schedule a free consultation, please do not hesitate to contact Nick by telephone at (269) 388-7600 or email him at firstname.lastname@example.org.