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Banker's Options When Debtor Files for Bankruptcy

 Posted on December 26,2018 in Bank Collections

Banker's Options When Debtor Files for BankruptcyA bank must pause its efforts to collect a debt or foreclose on a property if the debtor files for bankruptcy. The automatic stay is one of the most powerful tools that a debtor has during bankruptcy. The stay expires after 30 days, but the debtor can file for an extension. As a bank, your priority when a client files for bankruptcy is to protect yourself and try to recuperate the debts owed to you. There are several actions you should consider.

Freezing Account

The automatic stay prevents you from withdrawing money from a bankruptcy filer’s account in order to offset debt. However, you can freeze your client's bank account in order to:

  • Protect the money from a bankruptcy trustee; or
  • Hold onto the money until you are able to offset it.

The trustee may order you to release the portion of the bank account that will be exempt from the bankruptcy. It may take weeks for the trustee to make this determination, which buys you time to pursue legal action.

Lifting Stays

Filing a motion to lift stay can stop the automatic stay and allow you to continue your debt collection or foreclosure efforts. A court may grant your motion if you can prove that:

  • The debtor has no equity in the property related to the debt; or
  • The collateral property is not protected, such as not having insurance.

Secured creditors are the ones most likely to try to lift an automatic stay. A debtor would need to prove that he or she could adequately protect you from financial loss in order to stop your motion.

Objection to Confirmation

A court must confirm a repayment plan as part of a Chapter 13 bankruptcy case. Before the plan is approved, you can review it and file an objection, saying that the plan understates:

  • The debt owed to you;
  • Your collateral interest in a property; or
  • The debtor’s available assets.

Reaffirming Debt

At the end of a Chapter 7 bankruptcy case, you may repossess collateral property related to unpaid debts. You can give the debtor a chance to retain the property by offering a reaffirmation agreement. The debtor would continue to make payments on the property, which may allow you to recover the entirety of the loan. However, you should judge whether the debtor will be able to keep up with payments before reaffirming the debt.

Contact a Chicago Creditors’ Rights Attorney

You must respond quickly when a client files for bankruptcy. A Chicago debt collection lawyer at Dimand Walinski Law Offices, P.C., can protect your monetary interests in the bankruptcy case. Schedule a consultation by calling 312-704-0771.


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