Once a bankruptcy case starts, creditors of the bankrupt party lose all rights to pursue payment of any debts outside of the bankruptcy proceedings. If one creditor were to settle with the debtor outside of the bankruptcy court it would unfairly prejudice the remaining creditors so the bankruptcy law specifically prohibits creditors from privately pursuing their claims.
The point of bankruptcy proceedings is to ensure that the division of a debtor’s assets is conducted in a fair and even manner. Therefore, the bankruptcy court must keep tight control over how the assets are managed once the bankruptcy proceedings start.
After the start of bankruptcy proceedings the debtor is no longer entitled to manage his or her own assets. Instead, a liquidator will be appointed by the court to manage all of the bankruptcy estate. Furthermore, the debtor must disclose all information about significant assets that should be included as part of the bankruptcy estate.
If you have questions about how your rights might be affected in an upcoming bankruptcy proceeding please contact our office for a legal consultation.