All is not lost if the debtor declares bankruptcy. Do not panic. We can help you through this difficult time.
The most important thing to do when you learn your debtor has filed bankruptcy is to stop all collection activity immediately. Do not proceed with a scheduled foreclosure sale, do not send demand letters, and do not make collection calls. Then call us.
The automatic stay, a federal court injunction that goes into effect the instant the bankruptcy petition is filed, stops virtually all creditor collection activity without any court order. Violating it, even unintentionally, can result in sanctions, your attorney fees being awarded to the debtor, and in serious cases, additional punitive damages.
What the Automatic Stay Does
Upon the filing of a bankruptcy case, the automatic stay goes into effect against the rights of creditors to collect their debt or realize on any collateral for that debt. It stops lawsuits, foreclosures, repossessions, collection calls, and demand letters, immediately and automatically.
The stay remains in place for the life of the bankruptcy case unless the court lifts it earlier. In a Chapter 7 case, that typically means three to six months. In a Chapter 13 case, it can remain in place for the full three-to-five-year plan term, provided the debtor stays current on all required payments.
The Issues That Cannot Wait
When a client tells us their debtor has filed bankruptcy, we immediately look up the case to confirm the filing, identify the chapter, and determine the applicable deadlines. Two issues are the most urgent.
The claims bar date is the deadline to file your proof of claim with the bankruptcy court. In Chapter 7 and Chapter 13 cases, this is typically 70 days after the petition was filed. Miss it, and you may lose the right to receive anything from the bankruptcy estate. In Chapter 11 cases, the bar date is set separately by court order and must be actively monitored.
In Chapter 13 and Chapter 11 cases, the debtor will propose a plan. You have a limited window to object to how your claim is treated before that plan is confirmed by the court, and a confirmed plan binds all creditors.
Our Bankruptcy Creditor Services
There are several services available to the typical consumer bankruptcy creditor. This information deals primarily with Chapter 7 and Chapter 13 cases, though we also handle Chapter 11 creditor representation. We can assist you in any bankruptcy court in Texas.
Proof of Claim
We prepare and file proofs of claim on your behalf before the applicable deadline. A creditor who fails to file a timely proof of claim risks having its claim disallowed entirely, receiving nothing from the estate, even if the debtor owes you money.
Automatic Stay Relief
When the debtor is missing post-bankruptcy payments or has no equity in the collateral, we file a motion for relief from the stay in the bankruptcy court seeking permission to proceed with foreclosure. Courts regularly grant stay relief in appropriate cases.
Reaffirmation Agreements
In Chapter 7 cases, when the debtor chooses to keep the collateral and remain personally liable on the debt, we prepare the reaffirmation agreement that documents that election and preserves your personal liability claim.
Plan Negotiation
In Chapter 13 and Chapter 11 cases, we review the debtor’s proposed plan and file objections when the plan improperly treats your claim, whether by undervaluing the collateral, proposing an inadequate interest rate, or failing to meet the legal standards for confirmation.
Chapter 7, Chapter 13, and Chapter 11: Why the Difference Matters
Chapter 7: Liquidation
The debtor asks for a fresh start. Non-exempt assets are liquidated by a court trustee, and the case is typically over in three to six months. For secured creditors, your lien on real property survives the Chapter 7 discharge even though the personal obligation is discharged, so if the debtor stops paying after the bankruptcy, you can still foreclose the lien.
Chapter 13: Individual Reorganization
The debtor proposes a three- to five-year plan to repay debts using future income. For home mortgage creditors, the plan can include a provision to cure pre-petition arrears over the plan term, which is why Chapter 13 is the most common tool debtors use to stop a scheduled foreclosure. The stay remains in effect for the full term of the plan if the debtor performs. When a Chapter 13 debtor misses plan payments or stops paying the ongoing mortgage, we move immediately for stay relief.
Chapter 11: Business Reorganization
Commercial debtors, including companies, LLCs, and partnerships, file Chapter 11. These cases are significantly more complex, can last for years, and require active monitoring of court deadlines. We represent creditors in Chapter 11 cases throughout Texas.
In this section: Proof of Claim · Automatic Stay Relief · Reaffirmation Agreements · Plan Negotiation
Frequently Asked Questions
My borrower filed bankruptcy the morning of the foreclosure sale. What do I do?
Stop everything and call us. The automatic stay is in effect from the moment the petition was filed. Proceeding with the sale after receiving notice of the filing can result in the sale being voided and sanctions against the creditor. We verify the filing, assess the situation, and file for relief from the stay promptly.
Does bankruptcy eliminate my lien on the property?
No. A bankruptcy discharge eliminates the debtor's personal liability on the debt but does not eliminate a properly recorded lien on real property. After the bankruptcy, you retain the right to foreclose the lien, you simply cannot sue the debtor personally for any deficiency unless there was a valid reaffirmation agreement in place.
How long will the bankruptcy delay my foreclosure?
It depends on the chapter and the debtor's conduct. In a Chapter 7 where the debtor surrenders the property, stay relief or automatic stay termination can happen within a few months. In a Chapter 13, the stay can last up to five years if the debtor performs, but most Chapter 13 plans fail, and when they do, we move for stay relief immediately.
What is a proof of claim and do I need to file one?
A proof of claim is the formal document you file with the bankruptcy court stating the amount you are owed and the basis for your claim. In most Chapter 7, Chapter 11, and Chapter 13 cases, you should file a proof of claim before the court-set deadline, called the claims bar date. Miss the bar date and you may lose the right to receive any distribution from the bankruptcy estate. We file proofs of claim on behalf of our clients and monitor the deadlines.
Can a bankruptcy plan reduce the interest rate on my mortgage?
Not for a mortgage secured only by the debtor's primary residence. The Bankruptcy Code specifically protects home mortgage holders from having their loan terms modified in a Chapter 13 plan. For mortgages secured by investment property, commercial real estate, or anything other than the primary residence, a plan can propose modified terms including interest rate reductions, and we object to those proposals when the proposed terms are legally insufficient.
What is the very first thing I should do when I learn my debtor has filed?
Stop all collection activity immediately. Do not proceed with a scheduled foreclosure sale, do not send demand letters, and do not make collection calls. The automatic stay is a federal court injunction that takes effect the instant the petition is filed, and violating it, even unintentionally, can result in sanctions, an award of the debtor's attorney fees against you, and in serious cases punitive damages. Once you have stopped, call us and we will look up the case, confirm the filing, identify the chapter, and determine your deadlines.
How will I find out which chapter my debtor filed and what deadlines apply to me?
When you bring us a bankruptcy, the first thing we do is look up the case to confirm the filing, identify the chapter, and calendar the deadlines that matter to you. The two most time-sensitive are the claims bar date, which in Chapter 7 and Chapter 13 cases is typically 70 days after the petition is filed and is set separately by court order in Chapter 11, and the window to object to a proposed plan in Chapter 13 and Chapter 11 before the court confirms it. A confirmed plan binds all creditors, so the objection window cannot be missed.
My debtor is a company rather than an individual. Does that change how the case proceeds?
Yes. Commercial debtors, including corporations, LLCs, and partnerships, generally file Chapter 11 rather than Chapter 7 or Chapter 13. Chapter 11 cases are significantly more complex, can last for years, and require active monitoring of court deadlines throughout. The automatic stay still takes effect the instant the petition is filed, and you still need to file a proof of claim and watch the plan, but the timeline and the procedures are different. We represent creditors in Chapter 11 cases throughout Texas.