Business Chapter 11 Filing: Creditors Perspective

When a business files a chapter 11 bankruptcy, it generally means that they’re having trouble paying their debts, but they’re not yet ready to declare the battle lost. Similar to a chapter 13 bankruptcy for individuals, business chapter 11 bankruptcy is a way to set up a court-approved repayment plan for mounting debts, while at the same time protecting assets from seizure, and negotiating some debts down to manageable amounts (or even total discharge). While any bankruptcy is a black mark on one’s credit record, a chapter 11, like a chapter 13, is a less-severe way to control debt without having to go through the total liquidation of a chapter 7.

Creditors Perspective on Business Chapter 11 

If you or your business is owed money by a business that is claiming chapter 11, you might wonder what rights you have and whether you can expect to see payment on your debt. It’s important for creditors to be aware of such situations and to know what’s coming in order to properly plan for the financial outcome. Below are a few key things for creditors to know should a debt-holding business file a chapter 11 petition. 

• Secured debts are more likely to see payback than unsecured ones.

If you hold a secured debt with the debtor, meaning there is collateral attached to the loan, chances are good you won’t see much affect, if any, from the bankruptcy filing. Unless the business is willing to give up the collateral in a repossession act, in which case you’d get it back, the payment schedule will likely continue much as before. If the account is not currently up to date, rest assured that you’ll likely be first in line (after fees and expenses, that is) for repayment as the bankruptcy moves forward.

If, on the other hand, you hold an unsecured debt, you should be aware that you’re lower on the priority list.

• Monitoring the case can make all the difference.

Various hearings and meetings held during a chapter 11 give creditors a chance to speak up for their rights. There’s no requirement that says you have to attend these meetings, but as a creditor it would be very wise for you to keep informed as to what is taking place. You may ask the bankruptcy court to add you to what is known as the “service list” for the bankruptcy case, meaning you will receive copies of all documents as the case moves forward. In this way, you can see if, for example, another debtor filed a petition and got placed ahead of you on the repayment list, in which case you may want to file yourself, and/or appeal the decision. In general, staying on top of the case as it moves forward is the best way to ensure your rights are protected and that you know what is coming next.

Getting Help

Whether you are filing bankruptcy or trying to collect money from a business that has gone bankrupt, you'll want a lawyer on your side. A lawyer can help you navigate through the many requirements and stipulations of the US bankruptcy code so you can get the best legal resolution possible in light of your particular situation.