General Overview

"Creditors' rights" collectively refers to the procedural rights and remedies designed to protect the ability of creditors to collect the money that they are rightfully owed. Creditors' rights deal not only with the rights of creditors against the debtor, but also with the rights of creditors against one another. Where multiple creditors claim an interest in the same property, or against the debtor's accounts in general, the rules governing creditor's rights determine which creditor has the superior right to any particular relief. Generally, creditors can be divided between those who "perfected" their interest by establishing an appropriate public record of the debt and any property claimed as collateral for it, and those who have not.

The Importance of Creditors' Rights in Bankruptcy Cases...

Creditors' rights are instantaneously impacted by the filing of a bankruptcy petition. Upon receipt of notice of a bankruptcy filing, it is of paramount importance for the creditor to quickly identify the specific type of relief being sought by the debtor, and in response thereto, determine what rights may be available to the creditor within the context of the debtor's bankruptcy case. The creditor must then act proactively to protect and prosecute those rights within the bounds of bankruptcy law and procedure. These rights include, but are not limited to, the right to share in any distribution from the bankruptcy estate (if available and depending on the chapter under which the bankruptcy petition was filed), the right to challenge a debtor's plan of reorganization, and more broadly, the right to challenge the debtor's right to a general discharge or discharge of a particular debt.

There are numerous rigorous deadlines imposed by the bankruptcy court within which creditors are required to take certain actions to preserve their rights. A creditor's failure to strictly adhere to these deadlines, even if by reason of mistake or inadvertence, can lead to devastating results. For example, a so-called "proof of claim" must be timely filed if a creditor is going to be paid out of non-exempt assets of a bankruptcy estate. The claim must be supported by attaching copies of any contracts or judgments concerning the claim, or a summary of the claim, if the supporting documents are voluminous to the proof of claim form.

Another deadline is imposed upon creditors who seek to file an action in the bankruptcy court to determine the creditor's right to challenge the right to receive a discharge in general or the debtor's right to discharge the debt owed to that particular creditor. This process of mounting a challenge is accomplished through what is commonly referred to as an "adversary proceeding." Yet another deadline is set for creditors who wish to contest the legitimacy of a debtor's reorganization plan under Chapter 11 or 13 where certain assets have been concealed, transferred, or undervalued, or who wish to contest the feasibility of the reorganization plan where the debtor is unrealistic about the prospects for its success.

David M. Baker, Esq.- your Massachusetts and Rhode Island Creditors' Rights Law Attorney!

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