What Happens If Your Creditors Object To Your Bankruptcy?

About Me
Recovering from a Business Failure

I’ve always admired entrepreneurs. Because of the financial risks they take, I think they are courageous people. Due to my timid nature, I never imagined I’d be one myself. But, after leaving a successful career in accounting a few years ago, I decided to launch my own home based business. So far, I’ve enjoyed success in this amazingly rewarding venture. Sadly, many entrepreneurs don’t experience the same type of success I’ve found. If they operate sole proprietorship or partnerships, their personal assets are often at risk when their business interests fail. On this blog, you will discover how a bankruptcy attorney can help a business owner who can’t pay his or her business debts.


What Happens If Your Creditors Object To Your Bankruptcy?

24 February 2021
 Categories: , Blog

Although it's a rare occurrence, there are times when creditors might object to how bankruptcy is working out. The court's mandate is to return as much value as possible to the creditors, at least within what the rules permit. Bankruptcy lawyers have to respond to these sorts of complaints on behalf of their clients, and it is a good idea for petitioners to understand what might happen.

Type of Bankruptcy

Much of the power of creditors to weigh in on a bankruptcy case arises from the type of bankruptcy. Generally, creditors have the strongest position in a Chapter 11 proceeding. This is a restructuring plan, and it's predominantly used by businesses to address shortfalls that may be well into the millions or billions of dollars. In addition to the petitioner's restructuring plan, the creditors are also allowed to make proposals.

Individuals can file for Chapter 11, but the heightened creditor rights make it unappealing to all but the narrowest parts of the population. The court will choose among the various plans if the creditor qualifies.

Notably, in Chapters 13 and 7, it is much less likely the creditors can steer the direction of the plan. Chapter 13 is also a restructuring process, but it's meant for individuals. To save the court's time, judges and trustees may listen to creditors' complaints, but they don't have to consider them. In Chapter 7, the petitioner's finances are usually so bad that creditors are lucky to just get much of what they're owed.


The most extreme allegation creditors might throw at a petitioner is that the entire filing is fraudulent. One reason it's wise to hire a bankruptcy lawyer is to make sure such arguments aren't viable. Fraud usually arises from deliberate or negligent attempts at hiding assets from the bankruptcy process.

It takes a lot of evidence for creditors to prove it, but the penalties for petitioners are potentially extreme. In the best scenario, the court rejects the petition. In the worst scenario, the petitioner could face fines or even criminal charges.

Complex Bankruptcies              

One area where creditors may create trouble is in a complicated filing. You might want to liquidate unsecured credit card debts in Chapter 7 while restructuring a mortgage under Chapter 13, for example. A creditor might assert they have the right to foreclose on the house because you filed Chapter 7. A bankruptcy attorney would have to prove you can afford to pay under the restructured plan after you complete Chapter 7.