Some individuals and businesses try to relieve themselves of their debt by filing for bankruptcy. Since bankruptcy judges can discharge many kinds of debt, it is natural for creditors to worry that they will not be able to collect on outstanding debts. Still, just because a business enters bankruptcy protection does not mean their creditors have no say in the process.
The truth is that creditors retain valuable tools that they can use to protect their rights during the bankruptcy. The U.S. Court website describes some of these tools, which include court actions but may also involve methods such as negotiating a solution with the debtor.
Court actions
While a bankruptcy filer may seek to use bankruptcy to stop creditor actions, a creditor may respond in court. Creditors have an array of court actions available to make sure the bankruptcy process does not disregard their wishes. To make sure the court recognizes their claim on debt, a creditor may file a proof of claim. If circumstances warrant, a creditor may file to lift an automatic stay.
Even if a debtor seeks to discharge debt, a creditor has recourse to try to stop it. As the U.S. Courts website points out, creditors may object to a debt discharge with an adversary proceeding. An adversary proceeding allows a creditor to file a lawsuit that could uphold the claim of a creditor and deny the debtor a discharge if the judge should find the debtor failed to meet certain requirements.
Negotiations
During the bankruptcy process, creditors may seek to negotiate a payment plan with the debtor. This may help ensure that the debtor will pay back all or at least most of the outstanding debt. However, creditors might also try to negotiate outside of bankruptcy with the debtor. A creditor may work out a debt restructuring plan or seek the help of a mediator to come to a resolution. Whether outside or within bankruptcy, creditors may have multiple chances to work things out to their benefit.
