Understanding the rights of creditors in bankruptcy cases
September 29, 2022
Understanding The Rights of Creditors in Bankruptcy Cases
Bankruptcy is a legal process that offers relief to people who cannot pay off their debts. Once a person or business files for bankruptcy, their creditors must stop trying to collect debts.
Bankruptcy benefits debtors because it allows them to discharge their debts. Although the filing will be on their credit report for up to 10 years, people in debt can get a fresh financial start and avoid the stressful collections process.
What if you are a lender and someone who owes you money files for bankruptcy? Though you may think that bankruptcy means you will never be repaid, it's possible you will see some or all of your money returned by the end of the process.
Creditors must take specific steps when notified of a bankruptcy filing involving their debtor. As a lender, you have privileges in bankruptcy cases, including the right to make your case for complete repayment. However, your rights can vary depending on the details of your loan and the debtor's overall financial situation.
Types of bankruptcy
When a person files for bankruptcy, the court puts their debts on hold. However, they still have to pay as much as possible of the total amount owed.
Chapter 7 bankruptcy is the most common form of insolvency, while you may also encounter debtors who file for Chapter 13 bankruptcy.
Here is a look at what you can expect as a lender if you get bankruptcy notice involving one of your debtors.
- Chapter 7 bankruptcy is also called liquidation bankruptcy. This process allows debtors to start afresh by discharging all of their debt. A bankruptcy court pays off as much of the debt as possible by liquidating the bankrupt person's assets and giving the proceeds to lenders. A trustee handles the sale of assets and the distribution of the profits. This court-appointed representative pays lenders based on priority. For example, secured loans get paid first, followed by unsecured debt. In many instances, a debtor can keep necessities, such as their residential home, work equipment, and vehicle needed for transport, during the liquidation process.
- Chapter 13 bankruptcy is also known as reorganization bankruptcy. This process is different because there is no liquidation of assets. The debtor starts the process by going to credit counseling and making a plan to repay existing debt. However, instead of paying lenders directly, the debtor deposits money into an account managed by a trustee. The process can take three to five years, with the trustee paying off debts in order of priority.
Chapter 11 is the other well-known type of bankruptcy, but it is only available to corporations, who can use the process to restructure and repay existing debts without having to stop operations. Unless you are a large shareholder or institutional lender, you will likely not be confronted with a Chapter 11 bankruptcy.
The importance of priority for creditors during a bankruptcy case
A lender's hopes of repayment after a bankruptcy filing depend on the loan agreement and terms.
A bankruptcy court treats creditors differently depending on the priority of debt and the type of debt security or collateral. If the debt was unsecured, such as a medical or credit card bill, you will typically have a lower priority for repayment.
Creditors who have secured loans, such as mortgages or vehicle loans, typically have a higher priority. The trustee will attempt to give them the value of the security assets from the liquidation proceeds.
Depending on the assets and financial situation of the debtor, a lender waiting for compensation for an unsecured loan may only receive partial repayment or no reimbursement.
Can creditors reject a bankruptcy discharge plan?
As a creditor, you have the right to reject part of the bankruptcy discharge. You can do so by filing an adversary proceeding. This case will require a lawyer because you need to prove that the debtor purposely misled the trustee and court to avoid repayment or engaged in another fraudulent activity to hide assets or avoid repayment. The alleged fraud could be in the bankruptcy filing itself or in any activities related to the debt before the bankruptcy filing.
Many of these cases involve people intentionally running up credit card debt or taking out loans in the months before declaring bankruptcy or signing property over to relatives to avoid liquidation.
What should a creditor do after they receive a bankruptcy notice?
If you receive a bankruptcy notice involving one of your debtors, there are specific steps you need to take to abide by the law and give yourself the best possible chance of getting a partial or full repayment.
- Stop any collection efforts or follow-ups about the debt. Once the debtor files for bankruptcy, they are protected from additional collection efforts. It is against the law to contact the borrower after you receive a bankruptcy notice.
- File your proof of claim with the court before the deadline. In most cases, you can submit your documents up to 70 days after the bankruptcy filing.
- Make sure to identify assets associated with secured debts. This is an important step because, in most cases, debts secured by property move to the front of the line for repayment.
- Accept or reject the debtor's discharge plans. The trustee will hold a "meeting of creditors," during which you can assess the bankruptcy discharge plan. In most instances, the trustee collects and verifies all supporting documentation beforehand. Except in some special cases, creditors or their legal representatives do not attend the actual meeting of creditors. You have 60 days from the meeting to reject the discharge plan.
When a debtor files for bankruptcy, the court tries to ensure they pay as many debts as possible through liquidation or a long-term repayment plan. However, you may want to hire a bankruptcy lawyer to represent your interests during the process. In addition to advising you about timeframes and proof of claim, they can review documents and supporting evidence to ensure the debtor is accurately representing their total wealth and not purposely hiding property or misrepresenting its necessity.
Learn which debts can be discharged in a New Jersey Chapter 13 bankruptcy, including credit cards, medical bills, and more. Robert H Johnson LLC can help you build a path to financial relief.
Learn how to qualify for Chapter 7 bankruptcy in New Jersey, including income limits, debt discharge rules, and eligibility requirements.
Considering Chapter 7 bankruptcy? Learn how the means test determines eligibility and what options are available if you don’t qualify. Robert H. Johnson LLC helps New Jersey residents navigate the bankruptcy process.
Struggling with Chapter 13 payments? Learn when and why converting to Chapter 7 may be the best option. Robert H. Johnson LLC provides legal assistance to the New Jersey public in navigating bankruptcy solutions.
Learn how Chapter 7 bankruptcy affects your credit and discover practical steps to rebuild it. Robert H. Johnson LLC provides legal assistance to the New Jersey public, helping individuals regain financial stability.
Can I Keep My Car If I File for Chapter 7 Bankruptcy in New Jersey?
Filing for bankruptcy can be a difficult decision, but for many individuals and families facing overwhelming debt, Chapter 7 bankruptcy offers a path to financial relief. At Robert H. Johnson LLC, we help clients in New Jersey navigate the Chapter 7 bankruptcy process, providing guidance and support to help them regain control of their financial futures.  What Is Chapter 7 Bankruptcy? Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” is designed to eliminate most unsecured debts, such as credit card debt, medical bills, and personal loans. Unlike Chapter 13 bankruptcy, which involves creating a repayment plan, Chapter 7 allows you to discharge qualifying debts without having to make ongoing payments to creditors. In a Chapter 7 bankruptcy, a court-appointed trustee may sell certain non-exempt assets to pay off creditors. However, most people who file for Chapter 7 are able to keep the majority of their assets through the use of bankruptcy exemptions. Who Qualifies for Chapter 7 Bankruptcy? To qualify for Chapter 7 bankruptcy, you must pass the “means test,” which determines whether your income is low enough to qualify for debt discharge under this chapter. The means test compares your income to the median income in New Jersey for a household of your size. If your income is below the median, you likely qualify for Chapter 7. If your income is above the median, you may still qualify after deducting certain allowable expenses, such as mortgage or rent payments, healthcare costs, and childcare expenses. At Robert H. Johnson LLC, we help our clients determine if they meet the requirements for Chapter 7 bankruptcy and guide them through the process of completing the means test. The Chapter 7 Bankruptcy Process Filing the Petition: The process begins by filing a bankruptcy petition with the court. This includes providing detailed information about your assets, debts, income, and expenses. Your attorney will assist you in gathering and organizing the necessary documentation. Automatic Stay: Once you file for bankruptcy, an automatic stay goes into effect. This halts collection efforts from creditors, including wage garnishments, lawsuits, and foreclosure proceedings, providing immediate relief. Appointment of a Trustee: A bankruptcy trustee will be appointed to oversee your case. The trustee reviews your assets, debts, and financial situation, and may sell non-exempt assets to pay creditors. However, New Jersey bankruptcy exemptions allow most people to protect essential assets such as their home, vehicle, and personal belongings. Meeting of Creditors: About 30 days after filing, you will attend a “341 meeting,” where creditors and the trustee may ask you questions about your finances and the bankruptcy filing. Your attorney will be by your side to ensure this process goes smoothly. Discharge of Debts: If everything is in order, your qualifying debts will be discharged, typically within four to six months. This means you are no longer legally obligated to repay those debts, giving you a fresh financial start. What Debts Can Be Discharged in Chapter 7? Chapter 7 bankruptcy can eliminate many types of unsecured debt, including: Credit Card Debt Medical Bills Personal Loans Payday Loans Utility Bills However, certain debts cannot be discharged in Chapter 7, including: Child Support and Alimony: These obligations remain in place after bankruptcy. Student Loans: While student loans are generally not dischargeable, there are exceptions for extreme cases of hardship. Recent Tax Debts: Some older tax debts may be discharged, but most recent tax liabilities cannot. Debts from Fraud or Criminal Activity: Debts resulting from fraudulent activity or criminal acts are typically not dischargeable. Chapter 7 Bankruptcy Exemptions in New Jersey One of the biggest concerns for individuals considering Chapter 7 bankruptcy is whether they will lose their assets. The good news is that New Jersey allows bankruptcy filers to protect certain assets through exemptions, meaning you can often keep essential property such as: Your Home: New Jersey residents can use federal or state homestead exemptions to protect equity in their primary residence. Your Vehicle: You can often keep your car if the equity in the vehicle falls within the allowable exemption limit. Personal Property: Furniture, clothing, and other personal belongings are typically protected. Retirement Accounts: Most retirement accounts, such as 401(k)s and IRAs, are exempt from bankruptcy and cannot be seized by creditors. Your attorney will work with you to identify which assets are protected under New Jersey or federal exemptions and ensure that you retain as much of your property as possible. Benefits of Chapter 7 Bankruptcy Debt Relief: Chapter 7 eliminates most unsecured debts, giving you the opportunity to rebuild your financial life without the burden of overwhelming debt. Immediate Relief from Creditors: The automatic stay stops all collection efforts, giving you relief from harassing phone calls, wage garnishments, and lawsuits. Quick Process: Compared to other forms of bankruptcy, Chapter 7 is relatively quick, typically taking just four to six months from start to finish. Fresh Start: Once your debts are discharged, you have the chance to start over and rebuild your financial future without the constant pressure of unpaid bills. Why You Need an Experienced Bankruptcy Attorney Filing for Chapter 7 bankruptcy is a complex legal process that requires an in-depth understanding of bankruptcy laws and procedures. At Robert H. Johnson LLC, we have extensive experience helping individuals and families in New Jersey navigate Chapter 7 bankruptcy. Our team is here to guide you through every step of the process, from evaluating your eligibility to protecting your assets and ensuring that you receive the full benefits of a fresh start. If you are overwhelmed by debt and struggling to keep up with payments, Chapter 7 bankruptcy may offer the relief you need. At Robert H. Johnson LLC, we are committed to helping our clients in New Jersey achieve financial freedom through compassionate and effective legal representation. Our experienced attorneys will work with you to explore your options and guide you through the bankruptcy process. Contact Robert H. Johnson LLC today to schedule a consultation and take the first step toward a brighter financial future.
For small business owners in New Jersey struggling to stay afloat, Subchapter V bankruptcy can offer a lifeline. Introduced as part of the Small Business Reorganization Act (SBRA) in 2019, Subchapter V is a streamlined version of Chapter 11 bankruptcy designed specifically for small businesses. It provides a more cost-effective and efficient path to reorganizing debt, making it easier for business owners to stay operational while managing their financial obligations. In this post, we’ll explore what Subchapter V bankruptcy is, how it works, and why it might be a good option for struggling business owners in New Jersey. What is Subchapter V Bankruptcy? Subchapter V is a special provision under Chapter 11 bankruptcy that is tailored for small businesses. Its goal is to simplify the bankruptcy process, reduce costs, and allow small business owners to retain control of their operations. Unlike traditional Chapter 11, which can be complex and costly, Subchapter V is designed to be more accessible, faster, and better suited to the needs of small businesses. Key Features of Subchapter V Bankruptcy Subchapter V includes several key features that distinguish it from traditional Chapter 11 and make it a more attractive option for small business owners: Streamlined Process Subchapter V eliminates some of the more cumbersome requirements of Chapter 11, such as the need for a separate disclosure statement and creditor approval of the reorganization plan. This streamlined approach reduces both time and legal fees. No Absolute Priority Rule In a typical Chapter 11 case, the "absolute priority rule" requires that senior creditors be paid in full before equity holders (such as the business owner) can retain any ownership interest. Subchapter V eliminates this rule, allowing owners to retain their equity interests even if creditors are not paid in full, as long as the reorganization plan is fair and equitable. Trustee Oversight A Subchapter V trustee is appointed to oversee the case, but unlike a Chapter 7 or traditional Chapter 11 trustee, the Subchapter V trustee’s role is primarily to facilitate the development and confirmation of the reorganization plan, rather than taking over management of the business. No Need for Creditor Committee In most Chapter 11 cases, a committee of creditors is formed to represent the interests of unsecured creditors. Subchapter V eliminates this requirement, further reducing costs and complications. Shorter Timelines Subchapter V cases have a 90-day deadline for the debtor to file a reorganization plan, significantly speeding up the process compared to traditional Chapter 11, which can drag on for months or even years. Who Qualifies for Subchapter V in New Jersey? Subchapter V is available to “small business debtors” as defined by the bankruptcy code. To qualify, the debtor must: Be Engaged in Business or Commercial Activities The business must be engaged in commercial or business activities, and the debtor must have a principal place of business in the United States. Have Total Debts Below the Debt Limit As of 2024, the debt limit for Subchapter V eligibility is approximately $7.5 million. This amount includes both secured and unsecured debts and is subject to periodic adjustments. At Least 50% of Debts Must Arise from Business Activities The majority (at least 50%) of the debtor’s debts must arise from business or commercial activities, as opposed to personal or consumer debts. Not Be a Single-Asset Real Estate Business Businesses whose primary activity is the ownership of a single piece of real estate (such as a rental property) do not qualify for Subchapter V. The Subchapter V Process: How It Works The Subchapter V process is structured to help business owners reorganize their debts efficiently. Here’s an overview of what to expect: Filing the Petition The process begins with filing a voluntary petition for Subchapter V in the appropriate bankruptcy court. The business must provide detailed information about its assets, liabilities, income, expenses, and business operations. Appointment of a Subchapter V Trustee Once the petition is filed, the court appoints a Subchapter V trustee. The trustee’s role is to monitor the case, assist in the development of a reorganization plan, and help facilitate communication between the debtor and creditors. The Debtor Remains in Control Unlike traditional Chapter 11, where a trustee may take over the business’s operations, the business owner (debtor) remains in control of day-to-day operations in Subchapter V. Filing the Reorganization Plan Within 90 days of filing, the debtor must submit a reorganization plan that outlines how it will restructure its debts and pay creditors over time. The plan can include a variety of provisions, such as modifying payment terms, reducing the principal amount of debts, or even proposing a sale of some assets. Plan Confirmation The court must confirm the reorganization plan. In Subchapter V, the plan can be confirmed without the approval of creditors, as long as it meets certain requirements, such as ensuring that the debtor’s disposable income over a 3-5 year period is dedicated to paying creditors. Discharge of Remaining Debts Once the plan is completed, the court issues a discharge of any remaining qualifying debts, allowing the business to continue operating with a clean slate. Benefits of Subchapter V for Small Business Owners Subchapter V offers several advantages for small business owners in New Jersey: Lower Costs The streamlined process and reduced administrative requirements make Subchapter V significantly less expensive than traditional Chapter 11. Quicker Resolution The 90-day deadline for filing a plan and the simplified confirmation process mean that cases can be resolved more quickly, allowing the business to recover and move forward. Retention of Ownership Business owners have a better chance of retaining ownership and control of their business under Subchapter V, even if creditors are not fully repaid. Flexibility in Restructuring Subchapter V allows for more flexibility in restructuring debts, which can be crucial for businesses looking to remain operational while paying off creditors. Is Subchapter V Right for Your Business? Subchapter V can be an ideal solution for small business owners facing financial difficulties, but it’s not the right option for everyone. It’s essential to consider factors such as the nature of your debts, your ability to develop a viable reorganization plan, and your long-term business goals. How Robert H. Johnson LLC Can Help If you’re a business owner in New Jersey considering Subchapter V bankruptcy, having experienced legal guidance is crucial to navigating the process successfully. At Robert H. Johnson LLC, we have extensive experience helping small business owners assess their options, prepare reorganization plans, and work toward a brighter financial future. Contact us today to schedule a consultation and learn more about how Subchapter V could help your business overcome its financial challenges and thrive once again.
Facing financial difficulties can be overwhelming, but there is hope and assistance available. If you are a New Jersey resident considering Chapter 13 bankruptcy as a solution to your debt problems, you may want to consider seeking the expertise of an experienced attorney like Robert H Johnson LLC. With his years of experience in bankruptcy law, Attorney Johnson can guide you through the process and help you achieve financial relief.  Understanding Chapter 13 Bankruptcy: Chapter 13 bankruptcy is often referred to as a reorganization bankruptcy. It allows individuals with regular income to develop a plan to repay all or part of their debts over a period of three to five years. This type of bankruptcy can be beneficial for those who have steady income but are struggling to meet their debt obligations. The Role of Attorney Robert H Johnson LLC: Attorney Robert H Johnson specializes in bankruptcy law and has helped numerous clients navigate the Chapter 13 bankruptcy process successfully. He understands the complexities of bankruptcy laws and will work closely with you to create a feasible repayment plan that suits your unique financial situation. Personalized Approach: One of the key advantages of working with Attorney Robert H Johnson LLC is his personalized approach to each case. He takes the time to understand your specific circumstances and develops a tailored strategy that addresses your concerns and goals. Whether you are facing foreclosure, wage garnishment, or mounting credit card debt, he will advocate on your behalf and fight for your financial well-being. Expert Guidance Throughout the Process: Filing for Chapter 13 bankruptcy can be complex, involving detailed paperwork, court appearances, and negotiations with creditors. Attorney Robert H Johnson will provide expert guidance at every step of the process, ensuring that your rights are protected and that you have the best possible outcome in your case. Achieving Financial Freedom: By working with Attorney Robert H Johnson LLC on your Chapter 13 bankruptcy case, you can take proactive steps towards achieving financial freedom and starting fresh. With his knowledge, experience, and dedication to his clients, he will support you in overcoming your debt challenges and moving towards a brighter financial future. If you are considering filing for Chapter 13 bankruptcy in New Jersey, don't hesitate to reach out to Attorney Robert H Johnson LLC for trusted legal representation. With his compassionate approach and commitment to helping clients overcome financial difficulties, he can provide the guidance and support you need during this challenging time. Take the first step towards financial relief by scheduling a consultation with Attorney Johnson today.
Having trouble dealing with your debt problems? Look no further than Robert H. Johnson LLC, a dedicated debt settlement attorney ready to lead you towards financial freedom.