Ifa creditor files a lien against a company going into Chapter 11, wouldit have a preference in bankruptcy court over other unsecured claims?

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Ifa creditor files a lien against a company going into Chapter 11, wouldit have a preference in bankruptcy court over other unsecured claims?

Customer has lost their credit line at their bank and cannot pay us the $16K they owe our company for food product sold to them (which they have resold). They’re having a hard time paying their bills. I’m concerned they may file for chapter 11 bankruptcy.

Asked on August 17, 2010 under Bankruptcy Law, Arizona

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Ok, so if you are a creditor of the business and you believe that the business is going to file for Chapter 11 - which is a reorganization and not a discharge proceeding, although it can be converted to that or a liquidation proceeding under Chapter 11 - then you have to make sure that your debt is listed on the Petitioner's schedule or you have to file a proof of claim (with attaching evidence) yourself if it is not.  This will insure that your claim is properly noted and that you will receive notice of the proceedings.  The debtor must come back with a plan for repayment of the debt, which must be approved.  The claims will be paid in whole or in part depending on the circumstances of the debtor. A lien would give the appearance of a secured debt rather than an unsecured debt in a bankruptcy, which is always preferable.  Would you sue for a judgement?  I would seek help to decide laying out all the facts to an attorney who can help you decide the best route.  Good luck.


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