Debt Reorganization & Creditor’s Rights

As a bankruptcy attorney, we are skilled in all aspects of commercial and bankruptcy law. Insolvency situations require an assertive approach, quick thinking, and an eye on the long term goal. Creditors need options when faced with a borrower’s or customer’s bankruptcy filing, whether a liquidation or reorganization. Debtors often need to file bankruptcy because they have exhausted all other options with their creditors.

For debtors, restructuring a loan may provide the needed relief so that they can afford to repay the debt. If a debtor can have a little breathing room, the person or business has the opportunity to right their financial ship and steer it toward recovery. Bankruptcy provides an opportunity for a debtor to gather all of the creditors into one forum, so that a debtor is not broken up into pieces by the first creditor to a judgment.

For instance, a property owner many just need to place a tenant in its building in order to obtain a positive cash flow. Once the cash flow is restored, the real estate taxes, mortgages, and vendor debts may be placed on a payment plan that is affordable and ultimately, allow the owner to keep its building.

Creditors need to be repaid in a prompt fashion. In many cases, the collateral for a loan may be an asset with unknown value, like accounts receivable. In others, the value of real estate may be declining to such a point that the balance on the loan is more than the value of the property. Bankruptcy allows a creditor to gain access to the financial records of a debtor, to understand the other problems facing the debtor, and ascertain how the creditor can be repaid. Bankruptcy does provide many protections for creditors, not just debtors. By knowing its rights and options in bankruptcy, a creditor can protect its collateral and mitigate its losses.

A secured creditor may need to obtain proof of insurance for its collateral, understand how rents are being used to maintain the property rather than to pay a debtor or the insiders, or obtain relief from the bankruptcy court to commence a foreclosure. In some cases, a debtor may seek to sell collateral for less than its fair value. A secured creditor may seek protections from a “fire sale” by a debtor.

With the financial disclosures required in bankruptcy, unsecured creditors must determine if there is any possibility of repayment or whether they have grounds to contest an individual’s right to a discharge of the debt. Knowing the priorities for the repayment of debts in a bankruptcy case can affect an unsecured creditor’s cost-benefit analysis in a bankruptcy case.