bankruptcyinstruction

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

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 right to “adequate assurance” that you will pay the debt, including any past-due arrearages.

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) 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 loan or repossess the property securing the loan. The court generally holds a hearing on such a motion at which you 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 the other chapters of the Bankruptcy Code, you have to look out for your own interests when it comes to claims by creditors. Creditors may file claims, and it will be up to you to object if you don’t think the claims are accurate.

Can a creditor ask a debtor to reaffirm the debt?

 Yes, this means that the creditor is asking that the debtor pay the debt anyway, even after it has been discharged. A debtor may be willing to do this if there is a co-signer or guarantor of the debt (such as a family member, friend or employer) that the debtor does not wish to leave saddled with the debt. Also, a debtor may want to reaffirm a debt in order to avoid having a secured creditor take the collateral securing the debt. A creditor may also ask a debtor to reaffirm the debt before he (the creditor) will agree to do business with the debtor again.

It is important to remember that a reaffirmed debt is not wiped out (discharged) in bankruptcy. Once you reaffirmed a debt, you cannot stop. If you do, the creditor can sue you (or repossess the property) for the balance owed.

This only applies in Chapter 7 consumer bankrutpcy. This will not happen generally in a business Chapter 7.

What usually happens?

The most common participation by a creditor in a consumer bankruptcy case (since the majority of these cases involve no or very few assets) is to file a proof of claim and share in the liquidation of the bankruptcy estate or under a proposed plan. A proof of claim that is properly filed in accordance with the rules governing bankruptcy cases is evidence of the claim's validity and amount and is deemed allowed unless objected to by the debtor or interested third party. Unsecured creditors will not receive a distribution from the bankruptcy estate unless a proper proof of claim has been filed in the bankruptcy case. The proof of claim must be filed within 90 days of the date when the meeting of creditors was first set (not including any continuances).

Referred from:(http://bankruptcy-law.freeadvice.com/)