Understanding the Role of Creditors' Rights

Understanding the Role of Creditors’ Rights is crucial for individuals and businesses that lend money or extend credit. These legal principles establish the ability of creditors to enforce repayment obligations and navigate bankruptcy and insolvency proceedings.

A creditor can exercise several tools to collect on debt, including the right to place a lien on property, garnish a debtor’s wages, seize and sell assets, and set aside fraudulent conveyances.

Lien Rights

Creditors have various collection rights available to them to collect amounts that are owed. These collection tools include placing a lien on the property, garnishing wages, setting aside a fraudulent conveyance, and contacting debtors and relatives. Lien rights are often crucial to contractors, subcontractors, suppliers, equipment lessors, design professionals, and laborers on construction projects because they give them a guarantee that they will receive payment for the work or materials they provide.

Loan agreements and contracts, such as mortgages or security agreements on personal property like cars, typically create consensual liens. Statutory liens are placed by government agencies, such as tax authorities. Long Island, collection & creditors rights lawyer, assists clients in enforcing or preserving financial rights, including unsecured creditors’ committees, trustees, and non-debtor representatives, at all phases of bankruptcy reorganizations, liquidations, acquisitions, and out-of-court workouts. The firm also has extensive experience representing debtors in bankruptcy. 

Debtor’s Rights

Creditors and debtors are involved in various litigation and negotiations regarding financial obligations. 

A creditor may obtain a levy (or an attachment) of the debtor’s property to pay off the debt owed. However, the law limits the types of property a creditor can take and the amount that can be seized to avoid harming the debtor and other creditors.

Debtors are afforded a robust set of protections once they file for bankruptcy. Frequently, creditors must seek court intervention through the bankruptcy courts to enforce their rights and to protect against bad faith conduct by debtors. They also have the right to file a proof of claim to be paid for their claims. If a debtor’s claim is disputed, the burden of proving the validity of the underlying debt rests with the creditor.

Creditor’s Rights

Creditors are people or entities that loan money to a debtor in exchange for an obligation to pay back the amount owed. The law provides a variety of rights and collection privileges that creditors can pursue when a debtor fails to pay what is owed.

Creditors include individuals who loan money directly to a debtor, companies that extend credit or sell goods on credit, and financial institutions with legal contracts and loans. Creditors can also include governmental agencies that issue tax debts and utility debts.

When a debtor files for bankruptcy, creditors can seek payment by filing a proof of claim in the bankruptcy case. A proof of claim explains the amount of the debt owed and why it is valid. A creditor’s proof of claim can be challenged.

Creditors need to act quickly to file a claim in a bankruptcy case or risk losing out on a recovery. Creditors should work with a bankruptcy attorney to ensure they meet deadlines established by the Bankruptcy Court to protect their rights.

Collateral Rights

A creditor has the right to take ownership of a borrower’s assets and property if they are not paid back. Lenders often require collateral to minimize the risk of default. Collateral also typically allows lenders to offer borrowers loans at lower interest rates than they would otherwise be able to afford.

Anything of monetary value can be used as collateral. It can include real estate, like homes and cars, business equipment, such as factory machines and delivery trucks, and even outstanding invoices that represent money owed to the business by customers.

If the creditor takes possession of the collateral, it must maintain and preserve its value until it is returned to the debtor. This duty is based on common-law precedents. Subsection (b) imposes this duty on a secured party possessing collateral. Subsection (c) makes specific rules regarding issues arising when a party has collateral, including insurance and taxes.