Creditor Rights in a District of Columbia Bankruptcy Case
If you are a creditor, it’s important to understand that you have certain rights when a debtor files for bankruptcy protection. The bankruptcy system typically requires debtors to pay back as much of the money they owe as possible, with a few exceptions.
At Activist Legal LLP, our attorneys advocate for the rights of creditors in bankruptcy proceedings, working to secure as much of the debt owed to you as possible.
Collecting on secured debt
When collecting debts, one of your first considerations should be if the debt is secured or unsecured. When a debt is secured, it means there is some form of collateral the debtor has put up as part of the loan. Common examples include homes, motor vehicles, commercial properties or business equipment.
Unsecured debt does not have any collateral pledged to it. Credit card debt is the most common example. In general, it is easier for creditors to collect on secured loans, assuming the collateral in question is enough to cover the total debt owed.
When a debtor fails to make loan payments as specified in a written agreement, the loan enters default. As a creditor, you may need to act quickly, starting with sending a default notice to the debtor. In many cases, you may be able to work out some modified loan terms and avoid a dispute, while in other situations you may need to engage in further legal action to collect the money owed. This may include foreclosing on a property or repossessing equipment.
A common challenge for creditors in District of Columbia is the time it can take to foreclose on a mortgage. You’ll likely need to provide the debtor with a certain amount of time to catch up on payments before moving ahead with foreclosure proceedings. It can be somewhat less challenging to repossess equipment, although you may need to get permission from a court or a local sheriff’s department before doing so.
Secured debts usually take priority in in bankruptcy cases. Additionally, student loans and child support payments cannot be discharged in a bankruptcy.
Collecting debt from unsecured loans
With unsecured debts, you may need to turn to a collection agency—which may charge up to 50 percent of the total amount collected—to pursue the money owed to you. These agencies must follow stringent regulations for how they approach debtors, refraining from harassment or other illegal activities. In fact, collection agencies may face legal penalties if they violate these rules.
In many cases, you will need to file a lawsuit for there to be any action on collecting money owed through unsecured loans. You’ll also have to wait until a court issues a judgment against the debtor, who will have a certain amount of time to respond.
Once there is a judgement in place, you may seize the debtor’s assets—although there are some restrictions. For example, most states exempt assets like home equity, clothing, home furnishings and federal pension plans, and so you likely will not be able to draw from these assets to collected unsecured debts.
Frequently asked questions on creditor rights
At Activist Legal, we hear some common questions from our clients regarding creditors’ rights in bankruptcy cases. The following are a few of those questions and some answers from our experienced bankruptcy lawyers:
What is an automatic stay?
An automatic stay is an injunction that takes hold once an individual files for bankruptcy protection. It prohibits creditors from pursuing any debt that person owes until he or she finalizes a repayment plan (if applicable). You may not contact the filer for debts owed while the automatic stay is in effect.
What should you do when you receive a bankruptcy notice?
Once you find out a debtor has filed for bankruptcy, you should cease all collection activities immediately. Then, work with an attorney to file a claim with the court where the bankruptcy has been filed.
What is the deadline for filing a proof of claim?
Once the debtor files for bankruptcy, a court will provide an official notice of bankruptcy to all creditors with information on the date of the first meeting of creditors and the deadline for filing a proof of claim. This depends on the jurisdiction in which the debtor filed and various other factors related to his or her debt situation.
Speak with an experienced Washington bankruptcy attorney
For further guidance on asserting creditor rights during a bankruptcy, consult a skilled Washington attorney with Activist Legal LLP. We proudly serve clients throughout District of Columbia. Call us today at (202) 869-0804 for an initial consultation.