The Meeting of Creditors

Sounds pretty intimidating, doesn't it? A "meeting of creditors," your creditors, which you must attend and answer questions under oath. This generates images of angry creditors or their attorneys grilling the debtor with brow-beating and remonstration.

While I have seen such meetings, the reality is usually quite different.

The meeting of creditors is a "due process" step taken in every bankruptcy case in every chapter. After all, creditors are losing their right to collect their debts from you. They should have some input, right? The "meeting of creditors" occurs 20 to 40 days after the petition is filed. It is monitored or directed by a trustee appointed by the Executive Office of the United States Trustee (EOUST). The "first meeting of creditors" is exactly that: a first formal look at the case. Virtually nothing that happens at the first meeting of creditors is final although much that happens during the meeting can be huge, one way of another. It is certainly not to be taken lightly.

The nature and scope of the inquiry depends upon the chapter filed. It always looks at assets and debts, of course, and is also directed at determining if the Debtor has engaged in any "shenanigans" which might preclude the Debtor from reorganizing or discharging debt. This would include hiding property from the process or engaging in activity which the bankruptcy code deems objectionable.

In Chapter 7, the meeting of creditors is very straightforward and generally business-like. Very few, if any, creditors even show up. There is a pragmatic reason for this. Creditors gain little by attending; they lose little or nothing by not attending. Institutional creditors rarely attend the creditors meeting (not even Sears which used to attend regularly years ago but does not do so now presumably for a variety of reasons.) This does not mean a creditor will not show up for the typical consumer Chapter 7 meeting of creditors, but it is rare these days, at least in New Hampshire.

Chapter 13 meetings are presided over by the Chapter 13 trustee. The Chapter 13 trustee has all of the concerns that a Chapter 7 trustee has along with some additional matters, many of which are involved with the Debtor's proposed Chapter 13 plan including its fairness and feasibility. This is generally the first public "look" at what the Chapter 13 Debtor has in mind in dealing with the creditors.

Chapter 11 is an altogether "different animal." It is usually resorted to by businesses (LLCs, corporations, partnerships, etc.) which want to reorganize, and by individuals who seek to reorganize but are unable to avail themselves of Chapter 13 for one reason or another (most usually because they exceed the Chapter 13 "Debt Limits"). Most Chapter 11 petitions commence with the Debtor being what is called a "Debtor In Possession," meaning that there is no trustee actually running the Debtor's operations, at least at the beginning. The Debtor is charged with regular operations. The EOUST runs the meeting of creditors and has an oversight function. Depending on the nature of the Debtor's operation (generally some kind of business but not necessarily so), creditors with an interest may well show up at the meeting. They may also form into a "creditors committee" to monitor or become involved in order to protect creditors' interests. But all of that is beyond the scope of this primer. If you are involved in a Chapter 11, you will need a lawyer who can guide you through this labyrinthine process.

Chapter 12 in New Hampshire is about as rare as an actual wolverine in the wild in Michigan. It is sort of like a Chapter 13 and a Chapter 11 combined and the creditors meeting focuses on the usual issues discussed above. There is a Chapter 12 trustee and this usually will be the standing Chapter 13 trustee. Chapter 13 Debtors are persons who derive significant income, typically at least 50% or more, from farming or fishing operations.

Whatever chapter the Debtor files, it is our goal to make the "meeting of creditors" as straightforward and painless as possible. We believe that we succeed in achieving this goal. Much of that depends, however, on the Debtor's commitment to the same goal.