Pub. 2 2021 Issue 4

cbak.com 8 In Touch The Coming Bankruptcy Wave : BY CAMBER JONES, SPENCER FANE A Bankruptcy Overview for Creditors E xperts predict a continuing rise in bankruptcy filings as COVID-related debt relief expires. This article intends to provide creditors with a brief bankruptcy overview, including the most common types of bankruptcy cases, to enable them to participate more confidently in the bankruptcy process. Of course, bankruptcy is complex and each case is uniquely nuanced. Creditors should contact a bankruptcy attorney for assistance in responding to specific bankruptcy filings. 1. The Petition Every bankruptcy case is initiated by filing a bankruptcy petition. A debtor who files under any Bankruptcy Code chapter is required to file certain statements and schedules outlining its financial condition, including secured and unsecured debts. Creditors should review a debtor’s petition, statements, and schedules to gain insight into, among other things, the debtor’s intentions regarding their obligations and related collateral. 2. The Automatic Stay The filing of a bankruptcy petition triggers an injunction called the “automatic stay,” which temporarily halts most collection actions against a debtor or a debtor’s property. It is imperative that creditors not violate the automatic stay. When a creditor receives notice of a bankruptcy filing, it should immediately cease all actions against the debtor, including wage garnishments, collections, foreclosures, and repossessions. 3. Common Bankruptcy Types 1 Chapter 7 Chapter 7 is a “liquidation” bankruptcy. During a Chapter 7 case, a bankruptcy trustee gathers and sells a debtor’s non- exempt assets and distributes proceeds to creditors. Where there are no non-exempt assets available for sale, unsecured creditors do not receive distributions. Secured creditors generally retain their valid liens and the ability to enforce them after a bankruptcy case concludes. Chapter 11 Chapter 11 is a “reorganization” bankruptcy. In these cases, the debtor, acting in a fiduciary capacity as a “debtor- in-possession,” typically maintains possession and control of its assets and operates its business during the reorganization process. Often, a creditors’ committee is appointed to represent the interests of unsecured creditors.