Bankruptcy 101: What is a Creditor?
The individuals or businesses that the debtor owes money to are called "creditors." Creditors are classified as either secured, unsecured, or preferred.
| Secured Creditors | Secured creditors have a legal claim on the debtor's property, whether it's real property (real estate) or personal property (cars, livestock, furniture). This claim, called a lien, allows the secured creditor to sell the property to repay the debt if the debtor fails to make payments. The lien can be voluntary, like when borrowing from a bank, or involuntary, like when there's a tax lien imposed. A tax lien is the government's legal claim against an individual’s property when they fail to pay a tax debt. |
| Unsecured Creditors | Unsecured creditors (e.g., credit card issuers) and some cash advance companies do not have a legal claim on the debtor's property to ensure payment if there is a failure to pay. Unsecured creditors don't have priority and can't sell the debtor's property. If the debtor volunteers, they get paid. If the debtor doesn't volunteer to pay and hasn't filed for bankruptcy, the unsecured creditor needs to file a lawsuit and win a judgment to recover money from a defaulted debt. |
| Preferred Creditors | Preferred creditors are usually employees of the debtor company in a bankruptcy case. Preferred creditors have a right to receive wages, commissions, and other benefits. In bankruptcy cases, unsecured creditors rank lower than both secured and preferred creditors. |
What is a meeting of creditors?
- The Bankruptcy court holds a meeting of all the creditors. The meeting happens within 21 to 40 days after the debtor files a Chapter 7 bankruptcy case. It happens within 21 to 50 days after filing a Chapter 13 bankruptcy case.
- The debtor (a person filing for bankruptcy who owes money) will receive a notice at least 21 days before the meeting's scheduled date.
- If a debtor does not attend the meeting, their bankruptcy case will be dismissed. Their debts will not be discharged.
Before the meeting of creditors, debtors must:
- Give the trustee (court-appointed person who manages the bankruptcy case) a copy of the most recent filed tax forms. The deadline is at least 7 days before the meeting.
- Give 60 days worth of paystubs from all forms of income (including unemployment payments and retirement deposits).
- Give a copy of these documents to any creditor that asks for it. If a debtor fails to do so, the court may dismiss their case.
The above article provides information about legal issues but is not the same as legal advice. Legal advice is when a lawyer applies the law to your specific situation. The information in this article does not replace the advice or representation of a licensed attorney. Law Center for Better Housing cannot guarantee the accuracy or completeness of the information in this article and is not responsible for any consequences that may result from using it. You should consult with a licensed attorney to ensure the information in this article is appropriate for your specific situation. Using the information in this article does not create a relationship between Law Center for Better Housing and you as your attorney.