A Glossary Of Creditor’s Claims

Getting pulled into a bankruptcy case because a business or client you have been working with is in financial distress is not fun. Even if their case will not threaten your business, it is challenging to know how to best navigate the situation. 

The first step toward protecting your interests is often hiring an experienced bankruptcy attorney to advise you. Hanson & Payne has filled this role for numerous creditors in the Milwaukee area. 

One of the many things we do to assist our clients is explain to them their role in the case. Below is a brief overview of some different types of debt a creditor may hold, and an explanation of how the debts they are owed may be treated by the bankruptcy court. 

Lien – The right to take and hold or sell the property of a debtor as security or payment for a debt.

Secured Debt – Debt backed by a mortgage, pledge of collateral, or other lien. The creditor typically has the right to take possession of the property securing the debt if the debtor defaults. Examples of this type of debt include home mortgages, auto loans, and tax liens.

Secured Creditor – A creditor who holds secured debt. 

Undersecured Claim – A debt secured by property that is worth less than the amount owed. 

Unsecured Claim – When credit is extended solely upon the creditor’s assessment of the debtor’s future ability to pay, and there is no special assurance of payment, such as a mortgage or lien. Examples of this type of debt include credit card debt, medical bills, and personal loans. 

Priority – When there is not enough money to pay off all of a debtor’s unsecured claims, the debt will be ranked by priority. Higher priority debts will be paid off first. Low priority debts may not be paid off at all. Low priority debts may be discharged by the bankruptcy court. High-priority debts include alimony and child support, certain tax debt, and debts related to personal injury lawsuits. Low priority debts include credit card debt and medical debt. 

Preference or Preferential Debt Payment – Creditors and other businesses that have already been paid, and may not be aware that a business they work/ed with is in financial distress, can be pulled into a bankruptcy if a payment was made to them within 90 days before the debtor filed for bankruptcy. Bankruptcy law does not want for some creditors to get special preferential treatment so they may attempt to claw this money back to more fairly redistribute it among creditors. Thankfully, there are defenses a creditor/fellow business can deploy if the bankruptcy court attempts to claw back payments. 

While we hope this blog post is a helpful resource to creditors in the Milwaukee area, it is important to remember that true legal advice is not something you can get on the internet. If you have questions about bankruptcy, please contact our office to set up a meeting with a member of our team