Creditors Rights and Bankruptcy - Term Paper Example

Creditor’s Right and Bankruptcy Bankruptcy, debtors, creditors etc are some common terms associated with business. Bankruptcy cases occur when a person or organization fail to run their business positively and may suffer huge losses. In such cases, the entrepreneur or the organization (debtor) may try to file bankruptcy suits in order to escape from the immediate threats from the creditors. Some of the bankruptcy cases might be real ones whereas some others might be fabricated or fake ones. In any case, the ultimate sufferer would be the creditors. Most of the creditors have the illusion that once the debtor files a bankruptcy suit, their hope to recover money would be vanished. But creditors have certain rights in bankruptcy claims. This paper briefly analyses creditor’s claims in bankruptcy cases. Introduction Business is not the right profession for all the people. Many people failed to prosper in business because of their inability in managing the business successfully. In some cases, unexpected business climate changes can destroy the backbone of the business people. For example, the recent financial crisis came quiet unexpectedly and even prominent business groups struggled for the survival. In short, business can be a risky act at times because of so many reasons and the entrepreneurs may fall in a state of bankruptcy. Bankruptcy is the legally declared inability of an individual or organization to pay its creditors. The outstanding debts might be too much for the person or the organization to pay at once and the court or judge will determine the payment schedule based on the type of bankruptcy filed by the entrepreneur or the organization. When a business enters the bankruptcy state, it means either the business is closed or the the business will continue to operate with reduced payments to debtors. This paper briefly analyses the creditor’s right and bankruptcy in a legal environment. Creditor’s right and bankruptcy Creditor is a party (a person or organization) which provided certain money, property or services to another similar party (Debtor). In other words, a debtor is a borrower from the creditor. Debtors normally file bankruptcy suits in order to prevent the creditors from collecting the debts immediately. A bankruptcy suit prevents a creditor from taking any action against the debtor till the court take any decisions on the case. However, creditors have certain rights even after the debtor files the bankruptcy case as the debtor might have signed some legal contracts with the creditor before the actual deal was taken place. Some debtors file bankruptcy cases even when they have enough resources to return their debts. Creditor has the right to challenge the petitions filed by the debtor in order to investigate about the assets listed by the debtor since the debtor might have hidden some assets in order to gain a favorable verdict from the court. Creditors often believe that they have no rights when debtors file a bankruptcy suit. But that is not entirely true. Creditors have certain rights in bankruptcy cases also. Moran Law Group (2009) has mentioned that creditors can challenge debtors right to a discharge or the legal elimination of debt through a bankruptcy case (Moran Law Group). Some debtors may try to mislead the court by giving false data about their assets and financial abilities. If the creditor has any doubt that the debtor was deliberately trying to mislead the court, he can bring such things to the attention of the court. In most of the cases, the court will inform the creditors about the bankruptcy claims made by the debtors in order to know their opinions. The court will take a decision on the bankruptcy claim only after hearing the arguments of the creditors. “All creditors who are not listed in a debtors bankruptcy petition have the right to continue collecting or attempting to collect the debt” (Edwards). In some bankruptcy claims, the debtors may not mention the names of all the creditors due to some reasons. For example, the debtors may think that small amounts can be returned in near future and it is not necessary to list the names of such creditors in the bankruptcy suit. Such creditors can continue their efforts to recover their money as usual. Edwards (2010) has mentioned that when debt is guaranteed by a third party, creditors have the right to chase that debtor. That means, when a debtor files for bankruptcy, but a third party was listed on the original agreement, the debtor who filed the petition may not be contacted, but the third party listed may be contacted concerning the debt as long as it has not filed bankruptcy too (Edwards). At the time of signing some agreements, the creditors often seek a third party guarantee for the credits given to the debtor. If a third party guarantee was provide at the time of agreement, the creditor can follow the third party in case of a bankruptcy suit filed by the second party (Debtor) in order to recover his money. Sheri Cyprus (2010) has divided credits into two separate categories; secured and unsecured credits. For instance, a car loan agreement may specify that the creditor has the right to take back the rights to the vehicle if the debtor doesnt make the agreed payments. In other words, car loan is a secured credit. Unsecured debt refers to monies owing that included no collateral to secure it such as credit card debt. In other words, unsecured debts cannot be recovered by the creditor (Cyprus) All the basic rights given by the constitution is applicable to the creditors also. They can share in any revenue obtained from the debtor’s present assets. Immediately after the bankruptcy case has been filed by the debtor, the creditor should furnish documents related to his claims to the U.S. Bankruptcy trustee. Chancellor (2010) has mentioned that the U.S. bankruptcy trustee appoints a creditors committee, which is made up of representatives for the debtors largest unsecured creditors and this committee stays in direct contact with the debtor, investigates the debtors business conduct and operations and helps formulate the payment plan. The creditors committee should approve any plans submitted by the debtor and his attorney based on a voting. Voting rights are decided based on the value or size of the claims against the debtor. In other words, the votes of the creditors that have secured claims or claims of large amounts of money weigh more in the voting process than smaller creditors. If the debtor failed to reach an agreement with the creditors committee, he can attempt to force the creditors to accept an agreement. For this, the debtor must meet certain statutory tests to compel the bankruptcy trustee to approve the plan without creditor support (Chancellor) Conclusions Creditors have some rights protected by the court in case of the bankruptcy case filed by the debtors. Creditors can challenge the case at any time in the court if they feel that the debtor was deliberately trying to mislead the court or the debtor has hidden certain important information or assets from the court. Creditors that were not listed in the bankruptcy case can continue their efforts to recover their money in a normal manner. In agreements with third party guarantee, creditors can follow the third party for recovering their money. A creditors committee is appointed by the U.S. bankruptcy trustee in order to protect the interests of the creditors. Suggested areas of further research There are many cases in which the debtors succeeded in winning the bankruptcy cases and the creditors were forced to lose their money. There are bankruptcy cases in which debtors hide their wealth secretly, probably in another country, and may succeed in getting a verdict in favor of them. In such cases the creditors may lose their money. These debtors after some years may bring back their money from the foreign country and may start another business in another name. U.S. laws are very weak in dealing with such cases and such cases needed to be researched further. Works Cited 1. Chancellor, T.L. “Creditors Rights in Chapter 11 Bankruptcy”. 20 July 2010. 2010. 2. Cyprus, Sherry. “What Are Creditors Rights?”. 20 July 2010. . 2010. 3. Edwards, Taunda. “Creditors Rights & Bankruptcy”. 20 July 2010. . 2010 4. Moran Law Group. “Bankruptcy in Brief”. 20 July 2010. . 2009. Bankruptcy - Outline Abstract Abstract is provided as a separate paragraph in the cover page. Bankruptcy, debtors, creditors etc were defined in the abstract. Introduction The risks involved in business and the reasons why some entrepreneurs fail to prosper in their business etc were mentioned in the introduction. The term bankruptcy is defined in this part. Creditor’s right and bankruptcy The body part of this essay analyzed four different articles in order to know the rights of creditors when the debtor files a bankruptcy case. Moran Law Group (2009) has mentioned that creditors can challenge debtors right to a discharge. All creditors who are not listed in a debtors bankruptcy petition have the right to continue collecting or attempting to collect the debt. Moreover when debt is guaranteed by a third party, creditors have the right to chase that debtor according to Edwards (2010). Sheri Cyprus (2010) has mentioned about the differences between secured and unsecured credits and the rights of the creditors in each case. Chancellor (2010) has mentioned about the U.S. bankruptcy trustee and creditors committee to protect the rights of the creditors. Conclusions All the findings of the research were concluded in this part. Recommendations The areas which needed further research is mentioned in this part. There are bankruptcy cases in which debtors hide their wealth secretly, probably in another country, and may succeed in getting a verdict in favor of them. This has to be researched further References In this part, all the sources referenced for writing this paper is mentioned in the given referencing style. Read More