Understanding the Types of Creditors in a Colorado Bankruptcy Case
Bankruptcy creditors are defined as those with claims against the debtor that arose before the bankruptcy case was filed. Because bankruptcy involves tiered payments –whether in a lump sum or through a repayment plan– some creditors have priority over others. This gives them the first right to repayment when the debtor’s assets are distributed, potentially leaving non-priority creditors without legal recourse.
If a debtor has filed for bankruptcy protection in Colorado, lenders must act promptly to secure their rights and, if applicable, obtain priority status. Get help obtaining what you’re owed from the experienced Colorado creditors’ rights lawyers at Brown Dunning Walker Fein Drusch PC by calling (303) 329-3363 or connecting with our banking and finance attorneys online.
Categories of Bankruptcy Creditors in Colorado
Creditors generally fall into the following categories, with certain creditors taking priority during bankruptcy proceedings based on their subcategory.
Secured Creditors and Judgment Creditors
Secured creditors –most commonly mortgage holders and auto lenders– have first rights to the proceeds of the sale of the secured property. If the debtor’s home is sold during Chapter 7 proceedings, the mortgage is paid, and the debtor may take any applicable homestead exemptions out of the equity. Any remaining equity is distributed first to junior lienholders, such as judgment creditors who have placed a lien on the property, and then to unsecured creditors after applicable exemptions have been applied.
Priority Unsecured Creditors
The hierarchy of claims outlined in 11 U.S.C. § 507 distributes any remaining proceeds from the liquidation of a debtor’s assets to priority unsecured creditors in the following order:
- Child support and alimony arrears
- Administrative expenses
- Specific unsecured claims arising from involuntary bankruptcy
- Recent wages and benefits owed to employees and contractors
- Contributions owed to an employee benefits plan
- Agricultural debts
- Government claims
- Various taxes
- Personal injury judgments resulting from DUIs
Any remaining balance is then distributed to general unsecured creditors.
Unsecured Creditors
Unsecured creditors rarely receive fair payouts in bankruptcy cases involving liquidation. These creditors –including credit card companies, personal lenders, medical debt holders, and landlords– can claim a pro-rata share of the remaining proceeds. Unlike priority unsecured creditors, there is no internal hierarchy for these claims.
Understanding Non-Dischargeable Bankruptcy Debts in Colorado
You should always work with a creditors’ rights attorney to discuss your claims, as certain debts are not dischargeable. This means the order for relief does not impact them. Non-dischargeable debts include student loans (except in cases of undue hardship), domestic support obligations and related legal fees, criminal restitution and court fines, debts incurred from willful and criminal acts, debts from fraud, debts from previous bankruptcies, and recent income tax debts.
Colorado Creditors’ Rights Lawyers for Bankruptcy
Even if you have priority rights, lenders must still participate in the bankruptcy process to preserve and assert their claims, object to prejudicial motions a debtor may file, and challenge any inappropriate distributions and discharges. Assert your rights during adversarial bankruptcy proceedings with the dedicated Colorado bankruptcy creditors’ rights attorneys at Brown Dunning Walker Fein Drusch PC by calling (303) 329-3363 or connecting with us online.