The bankruptcy process is supposed to be a mediation process between the debtor and their creditors. However, the bankruptcy process does favor debtors over creditors in most cases. So, does this mean that creditors get nothing? Do they have rights or claims in a bankruptcy case? What happens to the debt? Here are some answers to those questions:
Do the creditors get anything?
It depends. There are different types of debts, some of which are considered a priority. The court will determine which of the creditors, if any, get paid and how much that payment will be. A priority debt creditor like the IRS, money owed to a spouse, employer, or victim of a crime will receive the bulk of payments in any Chapter 7 case. In a Chapter 13 case, these creditors are the first to receive payment before any other eligible creditors receive payment. How much any of the creditors receive is determined by the court based on the debtors level of income and asset values.
Do creditors have any rights or claims in a bankruptcy?
Yes. Although creditors will be prohibited from making collection attempts after a debtor has filed for bankruptcy, they can file a proof of claim with the bankruptcy court. The proof of claim essentially notifies the court that the creditor does intend to fight for repayment, and will most likely be showing up to the 341 meeting of creditors. However, just because a creditor files this claim does not mean they will receive any special treatment from the court.
What happens to the debt?
It depends. If the bankruptcy court grants a debt discharge in a Chapter 7 case, whatever debts were repaid through income or asset liquidation are considered satisfied and the remaining balance is no longer collectible. The same goes for a Chapter 13 case, in which any remaining balance after the completion of the repayment plan is considered resolved and cannot be collected by the debtor in the future. If any debt is a jointly held debt and the debtor filed individually, creditors could attempt to collect on the debt from the non-filing party.
For this, and many other, reasons it is important to only seek counsel from an experienced bankruptcy lawyer in Dayton. They can help ensure maximum protection from creditors, maintain your rights in bankruptcy, and help minimize the effects to others responsible for a debt.