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Creditors in a bankruptcy proceeding have certain rights, and depending on the type of claim Debt takes different forms, including secured and unsecured claims. To further distinguish, unsecured claims are then categorized into priority and nonpriority secured claims. During a bankruptcy proceeding, creditors maintain certain rights and are treated differently depending on whether they are secured or unsecured creditors. At The Bankruptcy Center of Illinois, our DuPage County lawyers represent debtors seeking to discharge their debt and pursue the best course of action for their situation. If you are concerned about creditors’ rights and your debt, we are here to provide information and legal guidance.
During a bankruptcy case, not all creditors are treated equally. There is a priority of claims, and bankruptcy law favors secured claims and priority claims, such as child support. A secured claim is one in which collateral has secured the debt. In some cases, secured claims are voluntary, for example, when the debtor has agreed to pledge an asset as collateral for a car. A creditor with a secured claim can foreclose or repossess property if the lien remains. If a debtor files for bankruptcy and intends to keep their property securing a loan, they must make payments to the lender until the debt is repaid.
Creditors maintain certain rights during the bankruptcy case. For example, creditors have the right to be heard in a Chapter 7 bankruptcy case regarding liquidating a debtor’s nonexempt assets. They also have the right to make a statement concerning a repayment plan under Chapter 13 bankruptcy. Importantly, creditors also have the right to challenge the debtor’s right to a discharge.
Unsecured debts are generally given low priority in a bankruptcy case. A creditor with an unsecured claim does not have a lien, and therefore, does not have the right to the value of the debt or the collateral. A priority unsecured claim includes debt that is not discharged in bankruptcy, such as alimony and child support. These claims are paid before nonpriority unsecured claims, if money becomes available. Nonpriority unsecured claims are dischargeable in bankruptcy including credit card debt and personal loans.
Unsecured creditors may not be paid in a Chapter 7 bankruptcy and likewise, may not be paid in Chapter 13, depending on the debtor’s property and secured debts. An unsecured creditor can file a proof of claim and attend the first meeting of creditors. They also may file an objection to the discharge of debt. If there are inaccuracies in the bankruptcy papers initially filed, the creditor may object. The court may approve a request to take the debtor’s deposition, as creditors may want to ensure they are repaid the full amount, based on the debtor’s assets.
It is important to note that the bankruptcy code makes clear that a debtor cannot prefer one creditor over another. A bankruptcy trustee may contact a creditor to request that money be returned if the debtor paid the creditor before filing for bankruptcy. If a payment was made on debt in the 90 days before the bankruptcy filing, this can be recovered by a trustee. The creditor may have a defense. Additionally, payments made to relatives in the year preceding the bankruptcy filing can be recovered.
To understand more about your options and rights as a debtor, contact the lawyers at the Bankruptcy Center of Illinois. Our skilled DuPage County collections and credit attorneys are prepared to evaluate your finances and assist in your next step. We represent people throughout Naperville, Aurora, and Wheaton, as well as Cook County and beyond. Call our office at (773) 993-0024 or reach us online to schedule a free consultation.