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What Role do Creditors Play in Bankruptcy?

Depending on the type of bankruptcy proceeding, creditors can have numerous rights. While bankruptcy automatically stays must collection activities, certain creditors may play an active role in the bankruptcy process. These creditors — whom the petitioner must list in his or her bankruptcy petition — must receive notice of the filing.

Under Chapter 7, creditors have the right to participate in a meeting of creditors under the supervision of the bankruptcy trustee. During this meeting, the debtor must answer under oath questions from both the trustee and his or her creditors regarding his or her finances. Creditors and other parties in interest may also file objections during bankruptcy or ask the court to extend the proceedings.

For these reasons, it is important for debtors to cooperate with creditors to the fullest extent possible. Under Chapter 13, creditors may participate in the debtor’s repayment plan confirmation hearing and file objects to the proposed plan with the court. This is in addition to the meeting of creditors, which proceeds similarly as under Chapter 7.

Under Chapter 11, the creditors pay the largest role in the bankruptcy process. Any creditor whose contractual rights will be modified by the debtor’s proposed reorganization plan has the right to vote on its approval.

In addition, the debtor’s seven largest unsecured creditors sit on a creditors’ committee, which is very active. This court-appointed committee oversees the debtor’s conduct or may even participate directly in forming the reorganization plan. Individual creditors may also file their own competing reorganization plans in some cases.

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