When you file for a bankruptcy case, be it under Chapter 7, 11, or 13, dealing with claims from your owed creditors would always be part of the process. In part, a claim can be a matter of a creditor having a right to payment or the court addressing someone to do or not to do something about the owed debts. Depending on the chapter by which a bankruptcy case is filed, a creditor’s claim can be treated differently from case-to-case basis. On the other hand, a creditor’s legal interests are always honored by bankruptcy laws especially when collateral is standing behind to secure a debt.
What is secured creditor?
By definition, secured creditors are those who take collateral for the issuance of bonds, loans, or credit extensions. In the case of bankruptcy, especially those filed by corporate bodies, secured creditors are those with a lien and are entitled to receive the profits taken from the foreclosure sale of the bankruptcy estate involved – a right which an unsecured creditor do not have.
Understanding secured claims and liens
In a bankruptcy case, a claim is said to be secured when a creditor has a lien on the bankruptcy filer’s bankruptcy estate ensuring the payment of debt. A lien, which is a right to payment, is also known as a “security interest” and might come in form of real estate mortgages as well as security interests found in goods, equipment or vehicles like cars, trucks, or boats. Because of the secured creditor’s right to payment, they are also lined up to pay before unsecured creditors.
The rights of a secured and unsecured creditor
In the matter of a bankruptcy case, secured creditors have more rights when compared with unsecured creditors. This is because the lien that secured creditors have reduces the risk of the creditor’s ability to take repayment making it a form of leverage for them.
Just the same, both creditors – secured and unsecured – have general rights to have whatever the matter of the bankruptcy case is. For one, it is a creditor’s right to share the proceeds taken from the bankruptcy estate depending on their claim’s priority. Second, creditors have the right to be heard by court especially with a debtor’s plan for nonexempt assets or asset liquidation. Lastly, a creditor has the right to challenge a debtor’s claim for a debt discharge.
Together with these general creditor rights, secured creditors also have added rights making them far better than unsecured or general creditors. The specific rights that secured creditors have can be by way of a judgment lien, a real property mortgage or a deed of trust, or security agreements on any personal property like a car. This allows a secured creditor to stop the insolvent from using collateral in a form of cash. They are also entitled to get money instead of a secured property if the latter has a lower value to offer. Also, they are entitled to accumulated bankruptcy lawyer fees and interest before and after a bankruptcy case.
Since there are different options for secured creditors under Chapters 7 and 13 bankruptcies, having a bankruptcy lawyer to help answer all your questions would be the best recommendation that you can take.