Creditors’ Rights in a Bankruptcy Case

Not everyone gets involved with bankruptcy voluntarily. Are you a business whose major client has filed for bankruptcy? If so, you’ll probably find yourself in bankruptcy court trying to defend your right to payment on debts owed.

Thousands of people in New York end up fighting for their rights in bankruptcy:

  • Are you a landlord whose tenant has filed for bankruptcy? You’ll need our services.
  • Are you a man or woman getting divorced whose spouse is filing for bankruptcy? Call us to ensure you get the marital property you deserve.
  • Have you received payment from a person or business that recently filed for bankruptcy? You’ll be hearing from the trustee wanting that money back.
  • Were you injured by a defendant who has filed for bankruptcy? Engaging with the bankruptcy proceeding might be the only way to protect your legal rights.

If any of the above relates to your situation, you need to contact Attorney Wenarsky & Goldstein today. Our New York law firm has helped countless non-debtors protect their rights to payment in the bankruptcy system. The simple fact is that no one else has your best interests at heart during the process. To make sure you get paid what you are owed, we highly recommend reaching out to our law firm today. We can review your case, provide advice, and jump in to protect you during the bankruptcy proceeding.

Does a Bankruptcy Trustee Protect Creditors?

The trustee is the person who oversees the administration of the bankruptcy estate. They might even collect the debtor’s assets and sell them to free up money to pay creditors.

Typically, a bankruptcy trustee needs to make sure that creditors’ claims are repaid to the maximum extent possible before discharging a debtor’s debts. When it comes to Chapter 7, all creditors have the right to be heard regarding the liquidation of the debtor’s non-exempt assets. Also, creditors must be heard regarding Chapter 13 bankruptcy and a repayment plan. Moreover, all creditors can challenge the debtor’s right to a discharge.

However, not all creditors are treated equally in a bankruptcy case. The bankruptcy code favors priority claims and secured claims. Child support can be considered a priority claim, while secured debts are those where collateral such as a house or a car secures the debt. On the other hand, debts of unsecured creditors are given the lowest priority.

Unfortunately, the trustee may tend to see other creditors who don’t have secured or priority claims as the same. And many creditors end up shafted by the trustee, who might not know the facts or the law as well as we hope. For this reason, you absolutely need your own attorney looking out for your interests. If the trustee takes an action that hurts your rights, we can bring it to the judge’s attention.

Be Careful with Collections

Bankruptcy is an orderly process that tries to treat all creditors the same. For this reason, an automatic stay kicks in as soon as the debtor files their case. This stay halts all collection activity. If you try to start a new collection activity while the stay is in effect, you can get into trouble with the court. You might even be sanctioned.

Collection activity is broad and includes:

  • Contacting the debtor
  • Foreclosing on the debtor’s property (like a home)
  • Repossessing the debtor’s property (like their car)
  • Evicting the debtor from an apartment
  • Perfecting a security interest
  • Suing the debtor for a debt
  • Trying to collect by placing a lien on the debtor’s property

How to Lift the Stay & Get What You Deserve

Although the stay protects debtors (at least temporarily), there’s good news. Federal law allows us to ask the bankruptcy courts to “lift” the stay in certain situations. Once the stay is lifted, we can go ahead with collection actions and get your payment.

You can only request a lift of the stay in certain situations, such as:

  • The debtor tried to defraud you or delay/hinder you. For example, they might have filed bankruptcy solely to prevent you from foreclosing on a property.
  • There is no equity in the property you want to foreclose on. Without equity, there’s nothing for the trustee to distribute to other creditors.
  • The debtor has stopped making payments after filing the petition. For example, they stopped paying on a car loan.
  • The property lacks insurance. An uninsured asset is at risk of declining in value.

Never assume you are entitled to get the stay lifted—and don’t take any collection action until your attorney gives you the green light. Work with an experienced New York creditors’ rights lawyer to make a strong argument to the judge.

Filing a Proof of Claim

A debtor might have forgotten to list your debt on the schedule filed in the bankruptcy court, or the listing could contain errors. You need to ensure that the court has the correct information. We can help file a proof of claim with the court within 70 days of the filing to protect your right to payment.

For example, common errors include mistakes regarding the amount you are owed, your contact information, or whether the debt is secured. Your proof of claim must be complete and include certain information, so working with an experienced attorney is helpful.

Fraudulent Transactions & Bankruptcy

The trustee can unwind some transactions as fraudulent. This step will augment the bankruptcy estate, meaning more money is available for all creditors.

As a creditor’s rights law firm, we can help any creditor with fraudulent transfers. For example, you might want the trustee to unwind a transfer that benefited a different creditor and disadvantaged you. If successful, you will probably receive more money on your claim.

Conversely, you might want to keep the assets or cash transferred to you. In that situation, we can push back against the trustee’s action.

The trustee can look back years to scrutinize transfers and try to unwind them. The money might be long gone, so contact a creditor’s rights lawyer today.

We Can Help You in a Preference Action

Some debtors choose to pay certain creditors before filing for bankruptcy. For example, a debtor might have 5 credit cards. She pays one in full a week before filing for bankruptcy. Under the law, the trustee might institute a preference action to get back the money paid to the credit card company.

This might sound impossible—but it happens. In fact, many clients have already spent the money they were paid before the trustee comes knocking and demands repayment.

Federal law lists certain defenses to a preference action, such as:

  • The transfer was very small (usually under $600 for a consumer debt or $5,000 for other debts).
  • The transfer paid debts incurred as part of ordinary business.
  • The transfer was made in exchange for a new value.
  • The transfer led to a security interest for new value.

Let us analyze whether you can fight off the preference action. Some trustees are very aggressive and seek to claw back money that was validly exchanged.

We Can Object to Discharge

Bankruptcy eliminates discharged debts, and a creditor cannot start up collection proceedings once the bankruptcy ends. However, we can help creditors fight the discharge of their debt if they have a valid reason. Bankruptcy doesn’t exist to help dishonest people profit by getting bankruptcy relief, so the law will disallow the discharge of certain debts:

  • The debtor obtained money by fraud, misrepresentation, or false pretenses. For example, they might have lied about their income on a loan application.
  • The debtor took out sizable cash advances (over $1,000) in the 70 days before filing for bankruptcy. This is highly suspicious.
  • The debtor made large luxury purchases in the 90 days before filing for bankruptcy. Bankruptcy doesn’t reward this type of spending.

We object to discharge in an adversary proceeding before the bankruptcy judge. Let us gather evidence to show a judge that your debt should survive discharge.

Speak with Our Creditors Rights Attorney in New York

Unfortunately, creditors are often forgotten in bankruptcy proceedings, which are overly focused on the rights of the debtor. Let us be your voice in the process. Contact Wenarsky & Goldstein today to schedule a consultation. You can reach our firm by calling 973-453-2838.