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Secured creditors who do not participate in bankruptcy proceeding

Bankruptcy decisions are often complex and not always seemingly consistent.  For example, while many bankruptcy decisions in federal courts hold that creditors need to take an active role in protecting their claims and raise timely objections, one recent decision appears to go in the other direction.

S. White Transp., Inc. v. Acceptance Loan Co, was decided in the U.S. Court of Appeals for the Fifth Circuit back in August.  In that case it appears that a secured creditor - with a lien on an office building owned by a party filing for bankruptcy - made the decision not to participate in a bankruptcy proceeding.  As the matter eventually made it to the Fifth Circuit, that court decided to place the burden on the debtor regarding the contesting of the secured creditor’s claims.

This ruling was very different from one where an individual filed for Chapter 13 bankruptcy protection and there was a difference in what the filer claimed was owed as opposed to what a creditor said was owed. Since the creditor failed to notify the trustee within a required time that it contested what the filer actually owed, this party could not then attempt to legally collect upon what remaining debt it felt was owed after the Chapter 13 bankruptcy plan was completed.

As experienced bankruptcy attorneys in the State of Washington, we only have so much control concerning decisions that the federal courts will make concerning bankruptcy filings. However, we can keep clients advised concerning their options and represent them in the event disputes do arise in court.

We will still have to see in what manner future bankruptcy decisions will be decided. However, we will also keep ourselves informed in regards to these cases.

Source: Mondaq, "Staying On The Sidelines - Fifth Circuit Ruling Protects Secured Creditors Who Opt Not To Participate In Bankruptcy Proceedings," Howard A. Cohen, Oct. 22, 2013

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