One of the jobs of a bankruptcy trustee in administering a bankruptcy case is to make sure that creditors’ claims are paid back to the extent possible before discharging a debtor’s debts. All creditors have the right to be heard with regard to liquidation of the debtor’s nonexempt assets in Chapter 7 and with regard to the debtor’s repayment plan under Chapter 13. All creditors are also entitled to challenge the debtor’s right to a discharge.
Not all creditors are treated equally in a bankruptcy case. All creditors are entitled to share in payment from the bankruptcy estate, but only according to the priority of their claims. Bankruptcy law favors priority claims like child support, as well as secured claims. Secured claims are those claims in which collateral secures the debt and the creditor can repossess and sell the property if the debtor defaults in payments.
Generally, secured creditors have rights based on a deed of trust, a mortgage, a security agreement on personal property like a car, or a judgment lien. Creditors with liens on property are entitled to receive value that is equal to the debt or the collateral—whichever is less. They can also stop a debtor from using cash collateral and collect money from a trustee’s use of secured property that lowers its value, as well as attorneys’ fees and interest that arises.
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Paul M. King