Someone Who Owes Me Money Filed for Bankruptcy

Someone Who Owes Me Money Filed for Bankruptcy
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Last updated: September 2010

1. What is a creditor?

A creditor is someone who is owed money. When a person or company files for bankruptcy, anyone that they owe money to is called a creditor. The person or company filing for bankruptcy is called a debtor. Examples of creditors include:

  • A bank who loaned money to a company;
  • A friend or family member who loaned money to another person;
  • A mother who is owed child or spousal support by her ex-husband; and
  • Employees who are owed wages by their company when it goes into bankruptcy. 

2. How will I know if someone who owes me money filed for bankruptcy?

About 15 days after the debtor files for bankruptcy, you should receive a notice from the court about the bankruptcy case. The notice:

  • Tells you that the debtor filed for bankruptcy;
  • Gives you the date of a Meeting of Creditors that you can attend;
  • Gives you a deadline for telling the court about the money you’re owed by filing a Proof of Claim, if this applies to you; and
  • Gives you deadlines for filing certain objections about the bankruptcy case. If you think you want to file one of these objections, you should speak with an attorney.

3. As a creditor, what do I need to do after I find out about the bankruptcy?

Read the notices you receive carefully to determine whether you need to file a Proof of Claim. A Proof of Claim tells the court how much the debtor owes you. You may not need to file a Proof of Claim if the person or company has no money or property to pay creditors. If you need to file a Proof of Claim, you should receive the form to fill out with the notice. You must file your Proof of Claim by the deadline listed in the notice.

You may also want to attend the Meeting of Creditors. This meeting is also called a "341" meeting.The date for the Meeting is on the notice you got about the bankruptcy. At the Meeting of Creditors, creditors have the chance to ask the debtor questions. You don’t have to go to this meeting though.

4. Are there other ways to get my money after the debtor files for bankruptcy?

No. The moment the debtor files for bankruptcy, you can no longer try to get your money back from the debtor. This is called the “automatic stay” and it lasts until the bankruptcy is over. Therefore, you cannot:

  • Sue the debtor to collect what you’re owed;
  • Send bills or letters to the debtor; or
  • Call the debtor to try to collect money.

The automatic stay also stops any lawsuits against the debtor, even if the lawsuit has nothing to do with the bankruptcy. Even if the debtor repays you voluntarily, you still may have to give it back. If you try to collect money from the debtor, the court may penalize you and you may have to pay money damages.

There are some exceptions to the automatic stay, where a lawsuit can continue, including:

  • Criminal cases
  • Child support, paternity, and divorce cases
  • Domestic violence cases

Some kinds of creditors can ask the court to lift the stay. You should talk to a lawyer if you want to try to lift the automatic stay.

Because of the automatic stay, all you can do is file your Proof of Claim and wait to see if there is money to pay your claim. The amount you get paid and the order in which you are paid depends on what type of creditor you are.

5. How much will I get paid?

How much you will be paid depends on what type of creditor you are. Unfortunately, creditors often get paid little or nothing of what they’re owed in a bankruptcy.

The three kinds of creditors in the order they get paid back are:

  • Secured Creditors- They get paid first and have a “security” interest in the debtor’s property. Examples include:
    • Banks that give you a mortgage for your house
    • Companies or banks that give you credit to for large purchases like cars, furniture, and large appliances

  • Priority Unsecured Creditors-Examples include:
    • Alimony or child support claims
    • Employee claims for wages earned within 180 days from the bankruptcy up to $11,725
    • Contributions to employee benefit plans up to $11,725 per employee

  • General Unsecured Creditors-They get paid last, after secured and priority unsecured creditors get paid.

If you are a secured creditor, you’ll get the value of the property you have a security interest in. If you’re owed more than the value, you’ll have an unsecured claim for the rest.

If you are a priority unsecured creditor, certain types of debts get paid first before others. 

  • For example, alimony and child support debts get paid first. Once they get fully paid, the next level of debts are paid. Each level must be paid in full before the next can be paid.
    • If your claim has a high priority, you may get most or all of the money the debtor owes you. If your claim has a low priority, you only get paid if the claims with higher priorities are paid and there is still money left over.

If you are a general unsecured creditor, you get an equal share of what is left after secured and priority creditors are paid. General unsecured creditors often get a small amount of what they are owed or nothing at all.

6. If there isn’t enough money to pay me, can I still get my money back from the debtor?

Usually no. After the bankruptcy case ends, debts are wiped out or “discharged.” But there are some debts that bankruptcy does not wipe out, including:

  • Child support
  • Alimony
  • Fines
  • Most taxes
  • Criminal restitution orders
  • Debts due to fraud, theft or embezzlement
  • Damages to another person caused by drunk driving or willful and malicious conduct
  • Debts from a property settlement in a divorce

But even if you have a type of debt that will not get wiped out, you usually can’t try to get your money from the debtor while the bankruptcy case is going on.

7. Do I need a lawyer?

A lawyer may help you understand what your rights are when someone who owes you money files for bankruptcy and how to protect those rights. A lawyer may be helpful if you want to make objections, if you want to try to lift the automatic stay, or if you want help filling out a Proof of Claim form.

However, you may not need a lawyer as a creditor. Read the notices you receive along with instructions to decide what forms you need to fill out and whether you want a lawyer's help.

8. My employer filed for bankruptcy and owes me money. What should I do?

If your employer filed for bankruptcy and owes you money, you will usually need to file a Proof of Claim. What you are owed up to $11,725 of wages you earned within 180 days of the bankruptcy filing has “priority.” This means that, if there is money to pay creditors, you will get paid before some of the other creditors.

But, there may not be enough money to pay your owed wages and you may not get the money you are owed.

Note: In some cases the company you worked for has no money to pay creditors and you will not need to file a Proof of Claim.

9. My ex-spouse filed for bankruptcy and owes me alimony or child support. What should I do?

If your ex-spouse filed for bankruptcy and owes you alimony or child support, read the notice you receive about the bankruptcy and instructions. This will tell you if you need to file a Proof of Claim. You will not need to file a Proof of Claim if your ex-spouse has no money to give to creditors.

If there is money to pay creditors, you qualify as a priority unsecured creditor and you will be paid before any other unsecured creditors get paid. Also, even if there is not money to pay you, your claim is not wiped out by the bankruptcy. Therefore, your ex-spouse will still owe you the support and you can try to collect it when the bankruptcy case is over.


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