Saying bankruptcy is complicated would be a huge understatement. The United States Bankruptcy Code
can seem extensive and difficult to understand (unless you practice bankruptcy law). However, if you’re a creditor, knowledge of the basics can go a long way in protecting yourself from significant losses that can occur when a customer files for bankruptcy.
Casey Hicks, shareholder and the firm’s Chicago office managing attorney, and Monette Cope, attorney, recently engaged in a casual yet informative conversation – over coffee, of course – about the top bankruptcy issues that all creditors should be aware of today. You can watch the full episode at the link below.
Here’s an overview of a few of the questions answered during this session.
1. What is the automatic stay?
Essentially, it’s an injunction that halts actions by creditors to collect debts from a debtor who filed for relief under the bankruptcy code. The automatic stay applies to every chapter of bankruptcy and it takes effect right away once the case is filed with the court. You can think of it as a big red stop sign that prevents you from pursuing further collection actions.
In chapter 13
, there is also a co-debtor stay. It applies to non-filing co-debtors who are liable on consumer debts with the debtor. So, if a debtor has a business debt that is co-signed by a non-filing co-signer, you can collect on the debt from the non-filing co-signer.
The automatic stay always remains in effect until one of four steps occur: a discharge, a dismissal, or an order granting relief from stay - whichever occurs first.
2. Do I need to file a proof of claim in a chapter 7 case?
No, you don’t need to file a proof of claim unless you get notice from the trustee to do so. Proof of claims in a chapter 7
are for unsecured creditors only.
3. Can I file a motion for relief from stay and abandonment in a chapter 7 bankruptcy?
The most common reasons to seek relief from stay include:
- The debtor wants to surrender the collateral
- The debtor is delinquent on the secured loan payments
- The collateral is uninsured
You cannot take any action to recover or sell the collateral without obtaining relief from stay and abandonment first. If you don’t have relief from stay by operation of law (discharge or dismissal), you will need to obtain an order for relief. In some jurisdictions, you cannot take action against the collateral unless the trustee has formally abandoned his interest.
4. How is chapter 13 bankruptcy different than chapter 7?
A chapter 13 bankruptcy is a reorganization of debts for individuals with a regular source of income. It involves a repayment plan to creditors for a 3-5 year period. The debtor retains ownership and possession of their assets but must devote all of their disposable income to repaying creditors.
The amount of money a debtor devotes to the chapter 13 plan depends on factors such as the amount of debt, equity in non-exempt assets, and the debtor’s income and expenses.
5. Do I have to file a proof of claim in a chapter 13?
Yes, you have to file a proof of claim in order to get paid. The debtor’s plan must provide for specific treatment of secured claims, such as auto loans and home mortgages. If a plan does not provide for your collateral, you should object to the proposed plan.
Unsecured claims are generally provided for with a dividend of the total balance owed. Unsecured claimants must receive as much as would if a debtor filed a chapter 7. The dividend can range anywhere from 0-100%.
At Weltman, our deep understanding of bankruptcy code and procedures enables us to obtain high recovery rates for creditors. Our Bankruptcy Recovery Group
includes attorneys who are licensed in California, Colorado, Florida, Illinois, Indiana, Kentucky, Maine, Michigan, Missouri, New York, Ohio, Pennsylvania, Washington, and Wisconsin. For matters outside of these states, we use our own thoroughly vetted and audited attorney network.
If you have additional questions regarding this topic, please connect with shareholder Casey Hicks
and/or attorney Monette Cope
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.