When your borrower files for bankruptcy: The dos and don’ts
We all understand that people can get in over their heads and will use the protections of Chapter 13 bankruptcy to keep their property while making payments. But what does this mean if you are the creditor?
Let’s put it right out there: you have rights too. However, there are some things you shouldn’t do as well as some best practice things you should be doing when your borrower files for bankruptcy.
- Don’t violate the automatic stay: When your borrower files for chapter 13 protection, that requires you to cease all collection efforts. This means no calls, no liens, no foreclosures or repossessions. Violating the automatic stay may mean that you are paying damages, attorney fees and possibly punitive damages.
- Don’t proceed against a co-debtor: Although you may file a request to terminate the co-debtor stay, you may not act against the co-debtor.
- Don’t forget to negotiate: With the goal of Chapter 13 being a plan to pay on the borrower’s creditors, you have the right to negotiate. Issues can often be resolved with a call to the debtor’s attorney.
- Don’t be reluctant to take concerns to court: If the negotiation path hasn’t taken you where you want to go, you have the right to request the Chapter 13 case be dismissed or converted to a Chapter 7 case.
- Do identify key deadlines: The initial notice of bankruptcy comes with several key dates, including the meeting of creditors date and deadline to file a proof of claim.
- Do file a proof of claim: You have the right to file a written statement setting forth your claim. If there are fees, interest, expenses and other charges, these must be itemized and included with your claim.
- Do attend the meeting: You have the right to ask questions at the creditors meeting.
- Do your review: As a creditor, you should review the debtor’s plans of reorganization and schedules, as well as their statement of financial affairs.
- Do consider hiring an attorney: A creditor who follows all the local and national rules as well as providing correct documentation will increase their odds of avoiding objections and prevailing on your claim. An experienced bankruptcy attorney can be a tremendous asset in accomplishing this.
As a creditor, it is important to remember that you have legal options. Your attorney can advise you and help protect your rights.