![]() You’ve just received notice from the U.S. Bankruptcy Court that one of your consumers has filed for bankruptcy. How should you respond? My Customer Filed for Bankruptcy – Now What?Understanding Your Rights When a
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Did you know there are in fact six different types of bankruptcy under the U.S. Bankruptcy Code? These are:
Three of the six bankruptcy types are by far the most common, and we’ll focus on these: Chapter 7, Chapter 11 and Chapter 13. Chapter 7 Liquidation
In a Chapter 7 bankruptcy, the consumer’s financial obligations are essentially wiped clean (with a few exceptions). Chapter 7 relief is available to both individuals and businesses.
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Do You Need to Verify a Bankruptcy?Have you heard “through the grapevine” that one of your consumers has filed for bankruptcy? If you haven’t received a notice from the bankruptcy court, what should you do? |
After the 341 Meeting, the court will send all creditors a notice, indicating whether the Chapter 7 was determined to be an “Asset” or “No Asset” bankruptcy. If the case is deemed "No Asset," and you are an unsecured creditor, you will not receive any payment.
However, in "Asset" Chapter 7 bankruptcy cases, unsecured creditors may be included in the distribution of assets. To be eligible for payment, you must file a Proof of Claim prior to the deadline stated on the Notice of Assets issued by the bankruptcy court.
Chapter 11 Reorganization
Chapter 11 reorganization allows businesses to keep operating while restructuring their finances in order to pay the bills. Because Chapter 11 is very complex, it’s typically used only by corporate entities.
Like the Chapter 7, there is a 341 Meeting for Chapter 11 bankruptcies, as well. But the purpose for the meeting is different. |
The debtor-business has four months from the date of filing to prepare a reorganization plan. After that, the creditors can propose a reorganization plan through a “creditors’ committee.” The primary purpose of this committee is to ensure that unsecured creditors are adequately represented in the Chapter 11 proceedings.
Should You Attend the 341 Meeting of Creditors?
A 341 Meetings of Creditors is held for every type of bankruptcy. Despite the name, most creditors do not usually attend these meetings. However, there are certain situations when you may want to attend:
- If the debt is secured, you may need to confirm the consumer’s intentions. For example, in a Chapter 7 the consumer has three options: surrender the secured property, keep the property and reaffirm (i.e., keep paying on) the debt, or redeem the property for its replacement value.
- If you have reason to believe there are discrepancies between the information stated in the bankruptcy petition and the information your consumer provided when applying for credit.
Proof of Claim in a Chapter 11
Chapter 13 Reorganization
As with the other forms of bankruptcy all creditors listed in a Chapter 13 will receive a "Notice of Bankruptcy Case Filing" and 341 Meeting. The purpose of the Chapter 13 341 Meeting is to determine if the repayment plan proposed by the consumer should be approved.

What If the Debt Is Secured?
In a Chapter 13 secured debts may be treated in one of three ways:
- The secured property can be surrendered back to the creditor.
- If the debtor is not behind on payments, he may keep the secured property and continue to make payments just as before, “outside” of the Chapter 13 plan.
- If the debtor is behind on his payments, he may keep the secured property and make payments to the creditor through the Chapter 13 plan.

Typically, secured debts are paid first, followed by priority debts (such as domestic support obligations and taxes).
General unsecured debts are paid last, in accordance with the proposed amount approved by the bankruptcy court.
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