What Are the Rights and Remedies of a Creditor During Bankruptcy?

A creditor's rights and remedies during bankruptcy depend on the limits of remunerations set forth by the state's bankruptcy code and the type of filing. A Chapter 7 filing allows creditors to access a percentage of the debtor's nonexempt liquidated assets, while a Chapter 13 filing allows creditors simply to be treated “fairly” by the proceedings.

Not all creditors are treated equally by the code. In terms of unsecured creditors, entities which have top priority claims will be first in line for monies and proceeds from the debtor's estate. In cases in which debtors do not have enough cash or payment options to satisfy all of the top priority creditors, the general priority creditors may end up with nothing. It's often up to the creditors to petition the courts to exclude a particular debt from discharge, and the debtor may dispute this claim.

That said, it's the debtor's responsibility to contest any creditor claims that aren't made during bankruptcy proceedings. In other words, the court assumes that creditor filings are complete and accurate, and the debtor therefore must submit paperwork or other evidence suggesting otherwise.

In Chapter 7 bankruptcy cases in which debtors possess zero nonexempt assets, most creditors with unsecured claims will be out of luck. Secured creditors may need special permission from the court to complete a repossession of property or a home foreclosing, and debtors may object to said rulings at numerous points along the process.

Creditors are prohibited under the law from ganging up to claim an artificially high repayment priorities status. In addition, creditors may not harass, call, or otherwise attempt to gain money from debtors once an automatic stay has been filed. There are some exceptions to this rule, however.

An ex-spouse seeking alimony or palimony, for instance, can still send notices and attempt to collect past due debt even after a bankruptcy stay has been instituted. The debtor may file for relief from these actions, but the court has the right to deny said relief.