How Much Creditors Can Recover in Chapter 7 Bankruptcy?
Whether Chapter 7 creditors can get all their money back during bankruptcy proceedings depends on their priority status, if any, and the debtor’s assets. Unsecured creditors – such as credit card companies – rarely recover all their money. However, certain secured and priority unsecured creditors might obtain some relief if they work with the dedicated Colorado creditors’ rights lawyers at Brown Dunning Fein Drusch PC.
Triggering and Protecting Creditor’s Rights During Chapter 7 Bankruptcy Proceedings
When qualifying debtors file for Chapter 7 bankruptcy in Colorado, the court appoints a trustee to identify and liquidate the debtor’s assets. The debtor must identify all creditors during this process. Most creditors have 70 days from the filing date to submit a proof of claim. After submitting their claims, creditors have the right to attend the creditors’ meeting (or send an attorney).
Creditors may ask the debtor questions under oath about their assets and financial affairs during this meeting. Having an experienced adversarial bankruptcy lawyer represent your interests is often the key to uncovering hidden assets. By asking the right questions, your attorney might identify an unlawful property transfer or catch the debtor in a lie. This could result in dismissal and the removal of bankruptcy protections.
Understanding Bankruptcy Creditor Priority in Colorado
Whether creditors can get their money back in a Chapter 7 case generally depends on their priority status. Bankruptcy creditors fall into the following categories:
Secured Creditors
Secured creditors are those with loans secured by the debtor’s property – such as a home or vehicle. Secured creditors have first rights to the proceeds of the sale of the secured asset, followed by any judgment creditors with a lien on the secured property.
Priority Unsecured Creditors
Certain unsecured creditors have priority if the bankruptcy estate has additional assets. Priority unsecured debts include claims for child support and alimony arrears, most tax debts, wages owed to employees and contractors, administrative expenses, and judgments resulting from DUIs. These debts are paid in the priority order outlined in 11 U.S.C. § 507.
General Unsecured Creditors
Unsecured creditors without priority split the remaining assets, if any, pro rata. Generally, unsecured debts include the following:
- Credit cards
- Personal loans
- Utility arrears
- Past-due rent
- Medical bills
- Litigation claimants
- Money owed to suppliers and vendors
Any dischargeable debts remaining after the debtor’s assets are liquidated and exhausted are eliminated, generally leaving creditors with no legal recourse to recover their money.
Colorado Bankruptcy Lawyers Protecting Creditors’ Rights in ‘No Asset’ Cases
Most Chapter 7 bankruptcy cases are ‘no asset’ cases. This means the debtor will have no distributable money remaining after taking the Colorado exemptions. Although not all debts are dischargeable, most priority and general unsecured creditors will not recover any funds through bankruptcy.
The best option in ‘no asset’ cases is to work with a dedicated bankruptcy lawyer for creditors at Brown Dunning Fein Drusch PC to challenge the case and get the petition dismissed. Call our Greenwood Village office at (303) 329-3363 or contact us online to discuss getting your money back during Chapter 7 proceedings.