Houston Bankruptcy & Creditors' Rights Attorney
Lawyers Representing Business Creditors in Bankruptcy Courts Throughout Texas
As a business owner, you put your financial neck on the line every time you extend credit to a customer. If a client goes out of business or files bankruptcy, you risk losing every dollar that client owes you. U.S. bankruptcy laws are not so one-sided, however, that the creditor loses all rights.
Hendershot Cowart P.C. is a Texas creditor rights law firm with a long history of aggressively standing up for the rights of business creditors seeking to recover debts. If you are a creditor who faces significant losses due to your debtor's bankruptcy, we can help you pursue all available remedies to protect your interests in a Chapter 7 liquidation or Chapter 11 or Chapter 13 reorganization proceedings in United States Bankruptcy Courts.
Protecting Business Owner's and Creditors' Rights in Bankruptcy Cases
Our team of creditors' rights attorneys has helped corporate clients of all sizes and structures protect themselves against bankruptcy filings, breaches of contract, fraudulent transfers and financial fraud and misrepresentation by debtors. The sooner you talk to an experienced creditors' rights lawyer, the better your chances for asserting and defending your claim.
We assist creditors with all aspects of creditors' rights proceedings, for both Chapter 11 or Chapter 13 reorganizations and Chapter 7 bankruptcies. Our creditors' rights attorneys can help you:
- File a proof of claim to assert your right to get paid in a bankruptcy case
- Object to the full or partial discharge of debts in a bankruptcy
- File complaints to determine dischargeability of certain debts
- Defend you against preference actions or preferential transfers
- Assert your right to compensation as a critical supplier or vendor
- Recover fraudulent transfers
In most cases, filing a bankruptcy petition creates an automatic stay, which prohibits further collection activities or legal actions against the person or business that filed for bankruptcy. The issue shifts from trying to collect on the debt to determining whether the debt can be preserved through bankruptcy.
We can analyze your case, advise you of your most promising options and pursue the best course of action on your behalf.
The 3 Types of Business Bankruptcy
Bankruptcy proceedings are designed to help struggling businesses and individuals restructure and discharge debts through repayment plans or liquidation of assets. There are generally three types of bankruptcy a business may file:
- Chapter 11 is used primarily for corporations. Itallows businesses to keep assets and remain in business while restructuring debt. The debtor’s debts are restructured through a plan or reorganization which often provides for certain pools of money to be distributed to classes of creditors and redistributes the ownership of the business. Some creditors may be able to recover all debts, others recover only a percentage, largely depending on whether creditors have secured or unsecured claims.
- Chapter 13 is for individuals or sole proprietors. It is a reorganization bankruptcy that functions like Chapter 11 but for individuals or sole proprietors who have sufficient income to pay creditors in full or in part. Debts are restructured and a three- to five-year payment plan is created. At the end of the payment plan, remaining debt owed to unsecured creditors can be discharged.
- Chapter 7 is available to both individuals and businesses and involves the liquidation of any available non-exempt assets to be used in payment of debts. A court-appointed trustee is responsible for liquidating assets and distributing proceeds among creditors. If debts outweigh the value of assets, any liquidation proceeds will be split among creditors. However, again, some creditors made be able to recover a greater percentage of their debts, depending on whether the creditor is secured.
What Are my Rights as a Creditor?
If your client or customer has filed for bankruptcy, you should receive a Notice to Creditors that clarifies your rights as a creditor, important deadlines, and your client’s financial situation. The notice will disclose:
- Whether your client has filed for Chapter 7, Chapter 11, or Chapter 13 bankruptcy;
- The court where the bankruptcy case is filed and the date of filing;
- The deadline for filing a proof of claim;
- The date and location of the first meeting of creditors; and
- The rules for collecting what you are owed.
This information is critical for taking the necessary steps to protect your rights as a creditor and determine whether to continue providing products or services to your client. Pay special attention to the deadline to file a claim. Failure to do so means your claim will have no chance of getting paid.
What Happens If I Don’t Receive a Notice to Creditors?
If you learn that a client with past due invoices has filed for bankruptcy and you have not received a Notice to Creditors, contact your client immediately to ask for the bankruptcy case number and the court in which the bankruptcy was filed. Time is of the essence as creditor’s rights in bankruptcy proceedings are limited by various deadlines, and we want to help you preserve all available remedies to recover what is owed to you.
File a Complaint to Determine Dischargeability of a Debt
Most of a bankruptcy filer's debts are discharged as part of the bankruptcy proceedings. Some types of debt cannot be discharged, which means they will exist even after bankruptcy proceedings are complete and if appropriate and timely steps are taken once the creditor receives notice of the bankruptcy.
Some common debts that cannot be discharged include:
- Debts incurred as result of false pretenses, a false representation, or actual fraud
- Debts incurred because of fraud or misappropriation while acting in a fiduciary capacity
- Debts incurred from embezzlement or larceny
- Debts result from willful and malicious acts by the debtor to another entity or to the property of another entity
- Child support and alimony
- Fines, penalties, and restitution for breaking the law
- Certain tax debts
- Debts arising from death or injury as a result of intoxicated driving
- Secured debt or liens – a creditor can simply reclaim the property used as security, although any deficiency balance will likely be discharged
Our creditors rights attorneys prepare complaints to determine dischargeability of debts, along with objections to discharge and legal action concerning preference actions and fraudulent transfers. If your complaint is successful, your entire debt will remain on the books even after bankruptcy.
How Quickly Are Debts Discharged in Bankruptcy?
The timing of the discharge depends on the type of bankruptcy:
- Dischargeable Debt under Chapter 7. Individuals in Chapter 7 may discharge their debts promptly (within a matter of months of filing bankruptcy) unless a creditor files an objection. Corporations and partnerships may not generally discharge debts. Instead, assets are liquidated, and the proceeds are dispersed among creditors.
- Dischargeable Debt under Chapter 11. Debtors may discharge debts once a reorganization and repayment plan has been confirmed.
- Dischargeable Debt under Chapter 13. A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan and if the debtor: “(1) certifies that all domestic support obligations due before certification have been paid, (2) has not received a discharge in a prior case within designated time periods, (3) has completed an approved course in financial management if available.” (11 U.S. Code § 1328)
How Do I Object to the Discharge of Debt Owed to Me?
As a creditor, you may object to the dischargeability of a debt, especially if you believe the debt was incurred due to fraud, willful and malicious acts, breach of fiduciary duty, or other illegal activities. If that is the case, you have two options:
- File a Section 727 Complaint. A creditor may object to the discharge of a debtor’s entire debt obligations under Section 727 of the U.S. Bankruptcy Code. This type of complaint, if successful, benefits all creditors and, once again, you may find yourself in line to collect the money owed to you.
- File a Section 523 Complaint. As a creditor, you may object to the discharge of your specific debt under Section 523 of the U.S. Bankruptcy Code. Obviously, the burden of proof is much lower since you are only addressing your specific debt, and you are the only creditor who will benefit from your complaint.
A complaint objecting to the dischargeability of a debt must be filed no later than 60 days after the 341 Meeting of Creditors.
Defending Bankruptcy Preference Actions
We regularly defend businesses and individuals who have been subjected to preference actions (preferential transfers) under the Bankruptcy Code. In simple terms, a preference action is a claim by a creditor that a debtor repaid another creditor preferentially, imminently prior to filing a discharge of debt under the U.S. Bankruptcy Code.
The code allows the bankruptcy trustee to recover money from creditors who were repaid during a certain period before the bankruptcy filing in certain cases. Officers, directors, and company insiders generally have a one-year look-back period, while others have a six-month look-back.
You or your business may have several defenses to a preference action. For example, if the payment you received was for "new value received," you may be able to successfully defend yourself against a preference action.
We understand the Bankruptcy Code and how it may affect creditors. We understand what may be at stake in your case, and we will protect you aggressively.
File for or Defend a Fraudulent Transfer
Sometimes, a bankruptcy trustee ties a preference action to an allegation of a fraudulent transfer. It is unlawful for a bankruptcy debtor to transfer an asset with the sole purpose of avoiding the effects of bankruptcy against the asset. This is called a fraudulent transfer.
The Bankruptcy Code lists numerous situations in which a transfer may be fraudulent, including:
- Transfers made by a debtor with the intent to delay or defraud creditors
- Transfers made for less than full value
- Transfers to a general partner when the partnership was insolvent
- Transfers to a trust in which the debtor is a beneficiary
In cases involving fraudulent transfers, other creditors listed for dischargeable debts have the right to file preference actions to recover the payments. If successfully recovered, the debt will be open for objection to discharge by creditors. Our bankruptcy fraud defense attorneys can fight to recover fraudulent transfers to preserve your options as a creditor.
Contact Hendershot Cowart P.C. to Protect Your Rights as a Creditor
Receiving notice that a client has filed for bankruptcy starts the clock for creditors who’ll need to navigate what are often unfamiliar proceedings. Hendershot Cowart P.C. is a creditors rights law firm that provides personalized support to business owners, general counsel, corporate directors, and executives who must address a customer’s bankruptcy and the related financial and regulatory fallout.
We have more than 100 years of combined experience successfully resolving transactional, litigation, and bankruptcy matters for businesses in Texas and throughout the U.S. Many of our bankruptcy cases are referred to us by other firms because we have the resources and experience to get results.
We represent business creditors in bankruptcy courts throughout Houston and Texas. Schedule an initial consultation with our law firm to learn how we can help you.
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