Our firm’s attorneys understand the needs of creditors in chapter 11 bankruptcy cases. One of the most common mistakes that creditors in chapter 11 cases make is that they are complacent and do not take steps to protect their interests them during chapter 11 proceedings. What many of those creditors fail to realize is that there are various ways to protect those interests.
The first thing that any creditor, whether secured or unsecured, should do upon notice that a chapter 11 case has been filed is to properly file a proof of claim. The proof of claim should be supported by any necessary documentation to support that claim. It may occur later on that the debtor files an objection to a claim arguing that the amount submitted on the claim is incorrect for some reason. If that occurs, the creditor that filed the claim may need to respond to that objection in order to show that the proof of claim submitted correctly represents the amount that the creditor is owed.
The next step that all creditors may consider is attending the debtor’s 341(a) meeting of creditors in order to observe the questioning of the debtor or even directly ask the debtor questions. This is an especially important tool if a creditor has specific questions regarding the debtor’s assets and liabilities and wants those questions answered under oath.
Secured creditors in chapter 11 cases should be first and foremost concerned with obtaining possession of the collateral securing their claim, or payment for that collateral. There are many ways that they can achieve this goal. For
instance, they, along with unsecured creditors, may attempt to seek conversion or dismissal of the chapter 11 case, if cause exists.
It is also common for secured creditors to file motions for relief from the automatic stay (for information on the automatic stay, please see our past blog entry at: http://thevclawgroup.com/understanding-the-importance-of-the-automatic-stay). If a secured creditor is granted relief from the automatic stay, they may foreclose on the collateral securing their claim pursuant to state law remedies.
Unsecured creditors can alternatively attempt to form an unsecured creditors’ committee, if one does not exist, or stay current on any notifications from an existing unsecured creditors committee (for information on the role of an unsecured creditors’ committees, please see our past blog entry at: http://thevclawgroup.com/the-role-of-a-creditor-committee-in-chapter-11-corporate-reorganization-san-diego-bankruptcy-attorney).
There are various other ways that creditors can seek to protect their interests in chapter 11 cases, such as attempting to restrict the debtor’s use of cash collateral, moving the Court for the appointment of a trustee or examiner, moving the Court to compel the debtor to abandon property, objecting to the debtor’s discharge, objecting to the debtor’s disclosure statement, and even filing a competing plan of reorganization. While each case and fact pattern is different, the only constant is that creditors should absolutely take a proactive approach to protecting their interests in chapter 11 bankruptcy cases.