Secured Creditor and Bankruptcy Claim Buyer Representation
When someone who owes you money files for bankruptcy, you now have what is known as a “creditor claim” against that individual. Creditor claims are classified as either secured or unsecured. A secured claim means that the creditor has a lien against a specific piece of property owned by the debtor, such as their house or car.
If the debtor receives a discharge in bankruptcy, that means they no longer have a legal obligation to repay the creditor. But a discharge has no effect on an outstanding lien. In other words, the creditor can still foreclose on the lien even after the bankruptcy case ends. That said, bankruptcy can still pose a number of potential complications for a creditor looking to get paid.
This is why if you find yourself in the position of holding a secured creditor claim in bankruptcy, it is a good idea to retain your own legal counsel to represent your interests in the case. Here are just a few legal issues you may need to consider:
Can You Sell Your Claim?
A bankruptcy case can take months–and in a Chapter 13 proceeding, years–to resolve. If the creditor wants to get paid promptly, it may be able to sell the claim. There are companies known as “claims traders” who will buy up creditor claims. The creditor gets an immediate payment–albeit not for the full amount–while the claims trader looks to profit should it receive a distribution from the debtor’s bankruptcy estate.
While selling a creditor claim might seem like a no-brainer, it does carry significant legal risks. For instance, depending on how the original debt itself was structured, it may not be legal to actually sell or assign the claim. Bankruptcy may be governed by federal law, but contracts are usually subject to the rules of a particular state. Each state may therefore also have its own regulations dealing with creditor claim sales.
Dealing with Potential Challenges to Your Creditor Claim
Also note that just because you present a secured creditor claim, that does not mean it will be accepted without incident. Either the debtor or the court-appointed bankruptcy trustee may object to a claim. The objection may be to the existence of the debt itself, the specific amount claimed, or even whether or not it is actually secured by the debtor’s property.
Now, the legal burden is initially on the objector–i.e., the debtor or the trustee–to provide some evidence that a creditor claim is invalid. But if they provide such evidence, then you as the creditor will need to refute it. Keep in mind, all creditors must file a proof of claim within a certain timeframe after the debtor initiates bankruptcy proceedings. If you fail to file a proof of claim, the trustee and the court can refuse to recognize your debt, no matter how valid it may be otherwise.
Again, this highlights the importance of having a qualified bankruptcy counsel to advise you whenever a debtor is looking to discharge their debts. If you need secured creditor representation from an experienced West Palm Beach bankruptcy attorney, contact the offices of Kelley, Fulton & Kaplan today.