A Massachusetts bankruptcy case is a complex legal litigation matter. As such, there are often many different people involved beyond just the debtor (the person that owes money, and is seeking bankruptcy).
Creditors in Bankruptcy
Creditors are the lenders, individuals or companies that are owed money by the debtor. These debts can be for a variety of different things. Creditors can be car loan lenders, mortgage lenders, consumer creditors (such as credit card companies and store credit departments). Even the government could be a creditor.
Creditors come in different forms as well. Unsecured creditors are lenders who cannot seize any property if the debtor defaults (is unable to repay) the loan. Unsecured creditors are also sometimes called general creditors. These are often consumer credit lenders. If you default on a store credit card, the store is not going to be able to repossess the items you purchased at the store. An unsecured creditor must sue in order to attempt to recoup the loaned money.
Alternatively, there are secured creditors, who have a legal right to repossess property that was bought on credit. These are creditors that have a debt that is connected to a specific piece of property, such as a house or a car. If you default on a mortgage, which is a type of secured loan, the creditor can repossess the house to satisfy (or fulfill) its debt.
As a special subset of secured creditors, state and Federal governments may also be secured creditors for paying tax bills. Tax liens can attach to a debtor’s property even though the back taxes may have nothing to do with the property that the government looks to take to satisfy the debt. Thus, the IRS could take a car from a debtor to satisfy a large, unpaid tax bill even though the bill was for income tax and was completely unrelated to the car.
A trustee is an official who is responsible for fairly administering a trust. In a bankruptcy proceeding, the trustee is responsible for making sure that the creditors, debtors, and the public interest are all fairly served.
As most bankruptcies flow through Federal bankruptcy courts, often a bankruptcy trustee is appointed by a group of Justice Department officials known as United States Trustees. The individual bankruptcy trustees are responsible for administering the bankruptcy itself. In a Chapter 7 bankruptcy, the trustee is responsible for determining what assets are to be liquidated and how to distribute the assets fairly among the creditors. Alternatively, in a Chapter 13 action, a “standing trustee” is often named to oversee the repayment plan that is set up by the debtor. The standing trustee ensures that the debtor follows the plan and makes appropriate payments under the plan. The standing trustee ensures that creditors respect the plan as well.
Trustees also have a duty to prevent fraud on the bankruptcy courts, report suspicious activity to law enforcement, and ensure that the fees that debtors pay are reasonable.
Navigating a bankruptcy alone can be a daunting task. To answer more questions about bankruptcy law, please contact the Law Office of Brian L. Lewis.