Creditor Rights Bankruptcy Attorney in Los Angeles
Creditors in bankruptcy have a unique set of issues and problems. This page provides information and answers to frequently asked questions pertaining to creditors in bankruptcy.
What is a creditor? A creditor is someone (or, some entity) that is owed money by, or has a right to payment or other remedy against/from a debtor who is the subject of the bankruptcy filing.
Your options as a creditor depend on which bankruptcy chapter was filed, how your claim arose, and what is going on in the bankruptcy case. An experienced attorney can help you to fully understand all of your options.
I have represented creditors in Los Angeles Area bankruptcy cases, in Chapter 7, 11, and 13 since 1991. If you are in need of assistance then contact my office today to speak with a lawyer.
Los Angeles Bankruptcy Attorney Assists with Creditor Rights
When a bankruptcy case is filed, creditors who are owed money have rights. The bankruptcy laws are designed to balance a debtor’s need for a “fresh start” of finances, with creditors’ rights to be paid.
Depending on which bankruptcy chapter was filed, and whether your debt is secured or unsecured, there are different steps that can be taken by an attorney to make sure to maximize recovery of the debt owed to you.
If you are secured, you can seek “relief from the Automatic Stay”, which is court permission to proceed with your collection rights against the collateral on which you are secured.
This may entail objecting to a repayment plan in Chapter 13 or Chapter 11, if the debtor has not provided for everything required by the bankruptcy laws.
And, sometimes it is necessary for your lawyer to object to the discharge of a debt, if it was incurred through fraud or other means excepted from discharge under The Bankruptcy Code. See the FAQs section below for more on debt discharge.
Another creditor rights problem that frequently arises in Los Angeles bankruptcy cases is getting sued by a bankruptcy trustee to recover money received prior to a case being filed. This is known as a “preference recovery” claim. Specifically, any payments received within 90 days before a bankruptcy filing are subject to being recovered by a Trustee. The purpose of this law is to ensure one creditor is not preferred over others, thereby making the process more equitable for all.
But when you are still owed money by the debtor and you are being sued for money already paid to you, this can be rather annoying, to say the least.
There are defenses to bankruptcy preference lawsuits, which almost always can reduce or eliminate the total amount needing to be repaid. Defenses should be investigated in all cases.
How a Creditor Rights Bankruptcy Lawyer Can Help Maximize Recovery of Funds
Attorney Mark Markus
Creditors have specific rights in bankruptcy cases.
I am Mark J. Markus and I am a bankruptcy attorney that has advised and represented creditors with their rights in Chapter 7, 11, and 13 bankruptcy cases since 1991 in the Greater Los Angeles Area of California. I am a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization.
I handle preference lawsuit defense matters, as well as analysis and advice on options to maximize recovery under any bankruptcy chapter.
My firm handles creditor rights representation for bankruptcy cases filed in the Greater Los Angeles Area, including counties of Los Angeles, Orange, Santa Barbara, Riverside, San Bernardino, Ventura, San Luis Obispo, and cities including Burbank, Glendale, Sylmar, Panorama City, Simi Valley, San Fernando Valley, Irvine, Santa Clarita, Oxnard, Huntington Beach, Ontario, Rancho Cucamonga, Corona, Torrance, Agoura, Long Beach, San Fernando, Van Nuys, Sherman Oaks, North Hollywood, Anaheim, Hollywood, Riverside, San Bernardino, Lancaster, Palmdale, Pasadena, and many more.
Frequently Asked Questions (FAQ’S) About Bankruptcy Creditor Rights In Los Angeles
What is the Automatic Stay in Bankruptcy and What Does It Do?
The automatic stay is an injunction that goes into effect automatically upon the filing of a bankruptcy. It prohibits the commencement or continuation of any acts to collect on a debt that arose prior to filing the bankruptcy. This includes enforcement of judgments, creating or perfecting liens, debt collection (such as wage garnishment and levies) and many other actions. (It does not apply to collecting alimony or other domestic support obligations).
I Got a Preference Letter from a Bankruptcy Trustee Saying I Have to Pay Back Money That Was Owed to Me. What Can I Do?
Here’s the scenario:
You have rendered services or sold goods to someone in the past.
Probably they still owe you money.
Then, they file bankruptcy.
Sometime within the next two years you open your mail and there is a summons and complaint seeking to have you pay back money to the bankrupt’s estate. Usually this is brought by the bankruptcy trustee.
Your initial reaction is one of shock and dismay. How can you be forced to pay back (often) tens of thousands of dollars that you rightfully earned, especially when you are still owed money by this debtor?
Preferential Payments Received Prior To Bankruptcy Are Recoverable
The answer lies in the “preference” section to the Bankruptcy Code, 11 U.S.C. 547. The overall purpose is to make it so a debtor cannot prefer one creditor over another by paying one more than another within the “preference period”. This “preference period” is 90 days prior to the commencement of the bankruptcy case (or, one year prior if you are related to the debtor and thus, an “insider”).
There are numerous defenses to a preference lawsuit and this is precisely when you need to hire an experienced bankruptcy attorney to protect your rights. It may be that some or none of the payments the debtor made to you are recoverable. The analysis can be very complicated and thus you need the expertise of an attorney.
Can I Still Collect on a Judgment Debt After a Bankruptcy Case is Filed?
No. However, you may have rights to pursue assets in the bankruptcy depending on what chapter was filed and whether you are secured by any of the debtor’s property.
I was Foreclosing on Property in Los Angeles When a Bankruptcy Case was Filed. What Can I Do?
First of all, you cannot proceed with the foreclosure. What you do next depends on what chapter the bankruptcy case was filed under and what the debtor’s intentions are with respect to the property. If the property is the debtor’s principal residence and the case filed is a Chapter 13, they will be required to stay current with your payments from that point forward and propose a plan to repay the past due amounts. You should contact a qualified bankruptcy attorney to assert your rights to the collateral. If the debtor filed a Chapter 7 case, you may be able to obtain permission from the court (via a Motion for Relief from Stay) to proceed with your foreclosure.
Can the Debtor Lien Strip (reduce the value of) or Remove a Lien I Have Against Property?
If the real property is the debtor’s principal residence, you can lien strip only under the following circumstances:
The debtor filed a Chapter 13.
Your lien is a junior, non-purchase money debt.
The value of the real property is LESS than the sum of all senior liens.
If the real property is not the debtor’s principal residence the lien can be partially or fully avoided depending on the value of the property. (Only in Ch. 13).
If you have a judgment lien (rather than a consensual trust deed based on a loan) against the debtor, and that lien has attached to their property prior to the filing of the bankruptcy case, they may be able to avoid (remove) your lien. This is true even in a chapter 7 case if it impairs the debtor’s homestead exemption. Determinations are based on the value of the property and amount of senior liens and encumbrances on the date the bankruptcy case is filed.
Obviously, this is a tricky area of law and you should consult with an attorney if you are faced with any of these scenarios.
I am an Unsecured Creditor. How Do I Ensure I Get Everything I’m Supposed to Get and All Assets are Listed?
This depends on what chapter is filed and how much you want to spend investigating everything. The bankruptcy papers that are filed may be obtained from the clerk of the court. You can review these papers to see if anything seems inaccurate to you. You may also obtain court approval to take the debtor’s deposition if you wish to inquire in more detail as to the debtor’s assets and debts.
What Happens if I’m in the Middle of a Lawsuit and a Bankruptcy Case is Filed?
The lawsuit must not proceed unless and until you obtain permission from the bankruptcy court, via a Motion for Relief from Automatic Stay. There may or may not be reasons for doing this (such as to determine, i.e. liquidate, the amount that is owed to you).
What Type of Debts Are Discharged in Bankruptcy Cases?
Different debts are dischargeable (or non-dischargeable) in different chapters of bankruptcy. And, for certain egregious acts, the entire discharge of ALL debts can be denied. This page will detail the most common types (but by no means ALL) of debts that cannot be discharged.
Most debts are “bankruptable” in a Chapter 7, Chapter 11, or Chapter 13 case, with several notable exceptions. Your bankruptcy attorney or lawyer can tell you which of your debts can be discharged in your case. In general, the following debts are NOT dischargeable (please note that this is not a complete list):
- Debts incurred by fraud or false pretenses;
- Debts incurred by a false statement in writing (such as false credit application)
- Debts incurred by embezzlement or larceny;
- Spousal support or child support obligations
- Debts incurred by willful AND malicious injury
- Debts resulting from death or personal injury by debtor operating a motor vehicle while intoxicated.
- Criminal fines and restitution.
- Marital Equalization obligations (Ch. 7 only–these may be discharged in a Ch. 13).
- Income taxes for tax years less than 3 years ago (see more on bankruptcy tax issues)
- Fines and penalties owed to a governmental unit.
- Student Loans (unless you can prove “undue hardship”–see more on student loans in bankruptcy)
Some of the above require the creditor in your case to file an objection to discharge within a specified period of time (for example, for the fraud-based allegations), whereas others are self-executing (for example, taxes or student loans).
How Do I Get a Debtor to Reaffirm a Debt in Bankruptcy?
Debtors may choose to reaffirm certain pre-bankruptcy obligations. This reaffirmation turns the debt into a post-bankruptcy obligation. This is desirable for creditors, but almost never for debtors. Extreme care must be exercised in seeking a debtor’s reaffirmation as there are increasing court and other legal requirements for doing so.
If I Was Not Listed in a Bankruptcy and Did Not Receive Notice, Can My Debt Still Be Discharged?
Generally, a debt that is not listed or scheduled on a bankruptcy petition will not be discharged unless the creditor has notice or actual knowledge of the case in order to timely file a proof of claim. HOWEVER, in a Chapter 7 case which is a no asset bankruptcy (meaning, no distribution would be made), most courts hold that the debt will be discharged even if it was not listed since there would be no distribution in any event. If you have grounds for objecting to the debtor’s discharge, that time period may be extended if you received no notice of the bankruptcy.
If a Debt is Guaranteed by a Third Party, Can I Still Pursue that party during a Bankruptcy Case?
Generally, yes. But, in a chapter 13 the automatic stay also protects co-obligors on consumer debts. Under such circumstances, you would need to seek court approval to proceed against the third party.