A Creditor is the person or organization to whom the Debtor owes money or has some other form of legal obligation to. Creditors can be divided into three general categories: Secured Creditors, Priority Creditors and General Unsecured Creditors. Lessors are also a unique form of Creditor which will be discussed separately below.
General Unsecured Creditors: hold claims that are not secured by property (collateral, such as a house or car) and are not entitled to priority (or special) treatment under the Bankruptcy Code. As such they are afforded the least favorable treatment in a bankruptcy case and their claims are typically discharged, receiving little if any compensation for such claims. Examples include, credit card companies, medical providers and payday loan companies.
Priority Unsecured Creditors: hold claims that are entitled to special or priority treatment under the Bankruptcy Code. Section 507 of the Bankruptcy Code ten (10) types of unsecured claims that are entitled to priority treatment. Examples of priority claims affecting individuals are: Child support and alimony claims (referred to in the Bankruptcy Code as “Domestic Support Obligations”); recent income tax claims, recent property tax claims and all withholding and sales taxes. Priority claims must be paid in full before unsecured creditors receive any distribution in the bankruptcy case.
Secured Creditors: hold claims that are secured by property of the Debtor. Generally if you are “making payments” on something, the creditor is secured by the item you are making payments on. Examples would include your mortgage company, car finance company, jewelry store and furniture store. If you default on your payments, the creditor can recover and sell the property, and sue you for the balance outstanding after the property is liquidated. The deficiency owed after the property is sold is unsecured.
Less obvious type of secured creditors could be your bank or credit union (they would have the right of setoff against funds in your checking account); a creditor that has a judgement against you (may be secured by any real estate you own); some credit cards issued by stores you may shop at (such as “Best Buy”) may have a lien on the property you purchased from them; and finally some finance companies that may have required you to “list” personal property that you own.
The threat of a secured creditor to foreclose or repossess their collateral (your home or your only means to get to work) is a main reason people begin looking into whether bankruptcy may be right for them. Bankruptcy is a Federal right which allows you to keep property even if you are behind on payments and the creditor will no longer work with you. Call today and let us help you understand your options! (919) 875-8773.