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Bankruptcy Law & Creditor's Rights

If you need help with collecting from a debtor, our experienced bankruptcy attorneys can help you by advising you of your rights as a creditor and helping you assess options based on the specific facts of your case. You may have rights of which you are not aware. Stellpflug Law, S.C. attorneys are skilled at assessing situations like yours and will know exactly what can be done legally.

Frequently Asked Questions

What is Bankruptcy?
Bankruptcy is a formal legal process that a debtor, whether it be a person or a legal entity, may go through when they are unable to pay off their debts. The debtor declares their inability to pay debt through bankruptcy. Their available assets are then liquidated, and the proceeds from the liquidated assets are distributed to the creditors which they owe. Once bankruptcy is declared, the debtor's assets are surrendered to a trustee appointed by the court. The debtor is then relieved of their debts. There are different chapters of the bankruptcy code and depending on the specific situation a debtor may declare bankruptcy under one of the chapters, such as Chapter 7, which has to do with liquidated assets, or Chapter 13, where debt agreements are reached.

What is a Garnishment?
A creditor who is owed money and is not being paid by a debtor may be able to take the creditor to court and win a judgment to collect their money. If the debtor currently has no money to pay the creditor, a judge may allow the creditor to take money from, or garnish, a debtor's property or wages in order to collect on the outstanding debt. When a debtor files for bankruptcy, however, an automatic stay is put into place which stops the garnishment of wages. Creditors are no longer allowed to attempt to collect the debt once the automatic stay is put into place.

What is a Secured Creditor?
A secured creditor has a security interest, or a legally enforceable claim, on particular asset or assets of a debtor. In the event of a bankruptcy filing by a debtor, a secured creditor would be entitled to a liquidation value equal to or greater than the loan amount. For example, in the event of a foreclosure sale, a secured creditor would receive the proceeds of the foreclosure sale. Secured creditors have the advantage of having priority when it comes to funds used in a bankruptcy case to pay off debts. Secured creditors will be paid first in a bankruptcy case, and only after all secured creditors have been paid will unsecured creditors be paid. Because of this, a secured creditor carries less risk than an unsecured creditor.

What should I, as a creditor, consider when deciding whether or not to pursue a judgment?
The creditor needs to consider the costs involved with pursuing a judgment. Even if attorney fees are contingent upon recovery, additional expenses include court costs and in some cases third party services for investigators, consultants and experts. Further, the creditor should consider the potential expense of defending a counterclaim. Another issue to be considered in deciding whether or not to pursue a judgment is the likelihood of a recovery from the debtor once you obtain your judgment. Whether or not the debtor is solvent is obviously an important factor in determining the likelihood of a successful collection after judgment. However, sometimes it is very difficult to assess the debtor's true financial picture when the collection problem first materializes. Finally, a creditor must always consider the risk of losing regardless of the how valid his claim may be.

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