The Debtor, Creditors, and Clerk in a Bankruptcy Case

Your bankruptcy case will make much more sense if you know the roles of the people involved, starting with debtor, creditors, and clerk.

The Debtor

This is the “person” filing the bankruptcy case. An individual can file a case, as can a married couple. The “person” can also be a corporation, partnership, or some other kind of business entity.

A sole proprietor business is not legally a separate person so it cannot file its own bankruptcy case. The sole proprietor files an individual case which includes the business.

A debtor has to qualify to file bankruptcy. Sometimes qualifying is very easy; sometimes it can be difficult. See Section 109 of the U.S. Bankruptcy Code on “Who may be a debtor.”

Also see Section 521 on “Debtor’s duties.” Your primary duty as the debtor is to deal honestly with the bankruptcy system to get the relief the system is designed to provide you.

The Creditors

These are the businesses or individuals to whom the debtor owes a debt. A debt is money owed based on some right to payment by the creditor.

A creditor’s right to payment is usually for a definite amount. It’s usually based on a contract or transaction with easily determinable dollar amounts. Likely you owe all or most of your creditors a definite dollar amount.

But a creditor’s claimed right to payment can also be “unliquidated”—for an unknown amount. An example is a debt owed to the creditor based on a personal injury the debtor definitely caused in a vehicle accident.

Or the debt can be disputed. An example is that same personal injury from an accident, when it’s unclear whether the debtor was at fault.

Debts owed to the creditor can be secured by collateral such as your home or vehicle, or whatever you purchased. Debts can also be secured involuntarily, such as an income tax with a recorded tax lien. One of the biggest areas of contention in bankruptcy is how collateral is treated between debtors and secured creditors.

Debts owed to the creditor are mostly not secured by anything—they are unsecured. The creditor has no lien on anything the debtor owns. But unsecured debts of different types can be treated very differently as well. Most unsecured debts are discharged—legally written off—in bankruptcy, but some are not. Child support, some income taxes, and most student loans are not.

Creditors are treated the same in bankruptcy, as long as the debts owed to them are of the same legal category. Otherwise, they can be treated very differently.

The Bankruptcy Clerk

The clerk takes care of most of the crucial but mundane operations of the bankruptcy system. The clerk’s office handles the clerical tasks within the bankruptcy court, most of which is now done electronically.

Your attorney files your case through a very secure internet connection with the clerk’s office. The clerk maintains your bankruptcy file, mails and sometimes electronically delivers most (but not necessarily all) of the important formal notices, runs the bankruptcy court calendar, and does lots other similar tasks.

If you are a debtor not represented by a bankruptcy lawyer, you would deal a fair amount with the clerk. As a debtor represented by lawyer, you would likely never deal directly with the clerk.