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Why join the creditors’ committee for a debtor in Chapter 11?

On Behalf of | Apr 20, 2022 | Firm News

If one of your debtors files for Chapter 11 bankruptcy, you may understandably be concerned about whether you’ll be able to get any of the money they owe you – and how long it will take if you are repaid. A company’s bankruptcy doesn’t have to be the end of the road for its creditors whose debt is unsecured.

One way to have some influence over how much of your debt you’re able to collect is to participate in the creditors’ committee. The bankruptcy trustee chooses the members of the creditors’ committee based on who is owed the most on unsecured debt.

What kinds of things does the committee do?

Businesses sometimes resist participating in these committees because it requires time and hard work. However, if you have the opportunity to be on a creditors’ committee, it will you a say – not just for your own business but for others – in what happens to the company that is in bankruptcy. It also gives you a chance to negotiate with other creditors since you’re not likely to get all of your money – at least any time soon.

Among other things, the creditors’ committee will determine whether they have a better chance of getting what is owed them if the debtor company reorganizes and stays in business or shuts down and liquidates its assets.

The committee can bring in other professionals

Creditors’ committees often bring in professionals to advise them on legal, financial and other issues. This can help increase the chances that their recommendations will be accepted by the bankruptcy trustee who has the final decision on what happens to the company.

If you’re asked to be on a creditors’ committee in a Chapter 11 bankruptcy, it’s likely that you’re owed a considerable amount of money. Nonetheless, you’ll need to consider whether it’s in your best interest to spend the time and resources needed to participate. It can help to seek legal guidance of your own to make this decision.