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Consumer Creditors in Bankruptcy

Last edited 21 days ago by Ted Broomfield

⁠

This article is aimed at such consumers with the goal of providing a high-level explanation of the concepts of bankruptcy and what a consumer needs to do to protect his or her rights. Bankruptcy is a legal process under federal statute. Bankruptcy can legally allow a person or a company to pay less than all the money owed, or none at all. In bankruptcy, the Court evaluates the assets, debts, and sometimes the income of the person or company that cannot pay, assigns a trustee to manage the process, and allows people and companies to assert claims against the person or company that cannot pay. Ultimately, the Court determines if any, all or some of the debts must be repaid, and orders the Trustee to pay those debts, including through the proceeds of selling the debtors’ assets.

What is Bankruptcy?

Bankruptcy is a legal process overseen by the United States

Bankruptcy Court⁠

governed by the

United States Bankruptcy Code⁠

(title 11, United States Code) and the

Federal Rules of Bankruptcy Procedure⁠

In Bankruptcy, the Court evaluates the assets, liabilities and income of a person or company that cannot or has not paid its debts for the purposes of determining if any amount of those debts will be legally dismissed without repayment and if so how much.

What are the types of Bankruptcies?

The majority of those who utilize the Bankruptcy laws are either natural human beings or companies. Individuals [human beings] may file

Chapter 7⁠

Chapter 13⁠

bankruptcy, depending on the specifics of their situation. Businesses may file bankruptcy under

Chapter 7⁠

to liquidate or

Chapter 11⁠

to reorganize.

⁠

Chapter 7⁠

bankruptcies are liquidating bankruptcies, meaning that the Court gathers assets, ascertains liabilities, gives the Trustee the power to sell assets and then the Court oversees the Trustee’s conduct in selling those assets and distributing the money to debtors.

⁠

Chapter 13⁠

bankruptcies for individuals or

Chapter 11⁠

for companies are loosely restructuring, meaning the Court evaluates the ability to generate income and repay based on income as well as potentially assets sales. Sometimes the debts are partially liquidated, meaning paid off or forgiven, and partially restructured meaning giving the debtor more time and less restrictive conditions to repay.

I received notice that a company that owes me money is in a bankruptcy proceeding - what do I do?

If you are a consumer and you received notice that a company that owes me money is in a bankruptcy proceeding, you may want to consider the following.

First, act fast and follow the instructions on the official notices. Failure to notice your claims can result in you losing your rights to obtain money.

The bankruptcy court provides forms that the creditor must complete and file to file a claim, which is also called a “proof of claim”.

A United States Bankruptcy

Proof of Claim⁠

Form ca be found at the following link:

⁠

https://www.uscourts.gov/forms/bankruptcy-forms/proof-claim-0⁠

⁠

The claimant needs to file the claim with the appropriate Bankruptcy Court. A

list of U.S. Bankruptcy Courts⁠

can be found at the following link:

⁠

https://www.uscourts.gov/about-federal-courts/federal-courts-public/court-website-links⁠

⁠

The person filing the Proof of Claim is responsible for redacting account numbers, social security numbers, minor children’s names and any information that would reveal medical records or otherwise violate privacy laws. Failure to timely file a Proof of Claim could mean that you lose your rights.

What happens after a Proof of Claim is filed?

The Court will appoint a Trustee. With the Trustee’s help, the Court evaluates the assets and liabilities of the debtor. In liquidating bankruptcies, the Court gives the Trustee the power to sell assets and use the proceeds to pay off the debts to the individual creditors. Almost always, the amount paid will be less than the amount owed.

The creditor should be contacted regarding the creditor’s claims. However, the creditor is allowed to contact the Trustee.

On the other hand, during bankruptcy the debtor is protected and the creditor is limited on seeking to collect.

Where can I learn more about Bankruptcy?

You can learn more at

The

United States Bankruptcy Court⁠

https://www.uscourts.gov/services-forms/bankruptcy⁠

⁠

The

American Institute of Bankruptcy⁠

https://www.abi.org/⁠

⁠

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