Creditors Rights & Bankruptcy
When a debtor files a petition for bankruptcy, this prohibits creditors from collecting on the debt until after the court has ruled on the petition. However, creditors still have some rights, because the debtor has signed legal binding contracts and promissory notes pledging to pay on the credit extended or the money borrowed. Creditors have the right to challenge any petition a debtor has made or investigate the assets listed in the petition.
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Challenge a Claim
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Creditors have the right to challenge any debtor's bankruptcy claim. The courts will notify the creditor if the debtor has placed any debt owed them on their bankruptcy forms. The creditor then has the right to come to court and object to the court allowing the debt owed them into the bankruptcy. The creditor has the right to be heard by the court in any bankruptcy filing, whether it's chapter 11, 12 or 13.
Share in Distribution
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Creditors have the right to share in any distribution that the court makes in regard to the bankruptcy estate of the debtor. So if the bankruptcy court orders the debtor to pay any monies or a lump sum of money, the creditors will have the right to obtain a portion of that money, depending on the amount of its claim. Most creditors that do not have unsecured and low-wage claims will not be considered a priority by the bankruptcy courts. Therefore, they will receive little or no money.
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341 Meeting
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Creditors do not have to attend the first bankruptcy meeting to challenge a debtor's claim. The first meeting, known as the 341 meeting, is a fact-gathering event. The creditor does however have to file a claim in a timely manner, as outlined by the court, to request payment for its claim. Sometimes notices to creditors are set out in the 341 meetings, so it would be a good idea to attend this meeting, but the creditor has the right not to be present.
Those Not Listed in Petition
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All creditors who are not listed in a debtor's bankruptcy petition have the right to continue collecting or attempting to collect the debt. Some debtors choose not to list all of their creditors, because they foresee paying them off in the near future. A creditor has the right to continue pursuing payment as long as it has not been listed in the petition or legally notified by the bankruptcy courts.
Third Parties
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When debt is guaranteed by a third party, creditors have the right to pursue that debtor. This mean that when a debtor files for bankruptcy, but another party was listed on the original agreement, the debtor who filed the petition may not be contacted, but the other party listed may be contacted concerning the debt as long as it has not filed bankruptcy too. In Chapter 13 cases, third parties are granted an automatic stay, which means creditors have to cease collecting on their debt until a judgment has been made.
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