What To Do When You Are An Unhappy Creditor In A Bankruptcy

Navigating Bankruptcy as a Dissatisfied Creditor: A Guide

When you find yourself on the receiving end of a bankruptcy as a creditor, it’s not uncommon to feel dissatisfaction with certain aspects of the process. This piece aims to shed light on your rights and available recourse in such a scenario. Please note that this is a general guide and not a substitute for legal advice. We recommend consulting with a legal professional and the Trustee in question as necessary.

1. Your First Line of Communication: The Trustee

Contrary to popular belief, the Trustee is not an employee of the bankrupt. They are akin to a court official, with responsibilities towards both the bankrupt party and the creditors. If you have any concerns about the bankruptcy proceedings, it’s advisable to reach out to the Trustee first. They can provide detailed advice and guidance that can’t be adequately covered in this brief guide.

2. Examining the Statement of Affairs

Every bankrupt entity is required to file a Statement of Affairs. This is a sworn document that outlines their assets and liabilities. As a creditor, you should thoroughly review this document. If you notice any discrepancies, inform the Trustee in writing, so they can carry out further investigations.

3. Filing a Proof of Claim

To officially establish yourself as a creditor in the bankruptcy, you need to file a formal document, known as a Proof of Claim, with the Trustee. This document should be accompanied by evidence that substantiates your claim (invoice, bill of sale, loan agreement, etc.). If you fail to file a Proof of Claim, you may not be able to avail the remedies discussed below.

4. Becoming an Inspector

Although this is not a common occurrence, you have the option to be elected as an inspector in a bankruptcy if there’s a creditor meeting. As an inspector, you will essentially serve as a member of the bankruptcy’s Board of Directors.

5. Reviewing the Bankruptcy File

Once you’ve confirmed your status as a creditor, you are entitled to review the bankruptcy file. This file contains information about the bankrupt’s assets, proofs of claim filed by other creditors, and monthly income and expense filings. This information can give you a better understanding of the bankrupt’s ability to make payments into the bankruptcy.

6. Requesting the “Section 170” Report

The Trustee prepares a report for creditors who have requested it, outlining their recommendations concerning the bankrupt’s discharge. You should review this report, understand the Trustee’s recommendations, and discuss it with them if you disagree.

7. Objecting to the Bankruptcy’s Discharge

As a creditor, you have the right to object to a bankrupt’s discharge. However, to do this, you must file a written objection and pay a court fee. Remember that merely not receiving payment is not a valid reason to object to a bankrupt’s discharge.

8. Filing a Complaint with the Office of the Superintendent of Bankruptcy

If you suspect any impropriety in the bankruptcy filings, you can lodge a complaint with the relevant Office of the Superintendent of Bankruptcy. They will then review the complaint and carry out an investigation, which may include questioning the bankrupt under oath.

9. Taking Action Under Section 38

In cases where a Trustee is unable or unwilling to take certain action, such as pursuing an asset transferred prior to the bankruptcy, a creditor can make a court application to take that action under their own name. This is a complex process and will necessitate engaging a lawyer, but you should consult with the Trustee first.

10. Suing the Bankrupt After the Bankruptcy is Over

If you believe your debt was incurred due to fraud or misrepresentation, these debts are not released in a bankruptcy. The appropriate course of action is to sue the bankrupt after they have been discharged and prove the fraud or misrepresentation during the lawsuit. You will need to consult with your lawyer regarding this alternative.

In conclusion, being an unhappy creditor in a bankruptcy can be a challenging position. However, by being proactive and informed about your rights and available options, you can navigate the process more effectively. Always remember to consult with your legal counsel and the Trustee as appropriate.

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