What is a Meeting of Creditors?

A meeting of creditors is a legally required step in bankruptcy cases. It may also occur as a part of debt settlement actions. The process entails the physical or virtual meeting of all companies or individuals who have extended credit to the debtor and is intended to provide the creditors an opportunity to protect their interests in the proceedings.

Most government entities who have jurisdiction over legal debt relief actions such as bankruptcy require that a meeting of creditors occur prior to a final determination of the case. All creditors are notified in advance of the meeting so that they have an opportunity to review the case, review the settlement or dismissal request made by the debtor and determine what, if any, argument they wish to make at the meeting. The creditor's goals during this investigative phase are to determine whether they have legal grounds on which to fight the proposed determination and whether it is cost-effective to do so.

For example, in the United States, debt associated with credit that was obtained using false information can be excluded from debt relief proceedings. A consumer who obtained a credit card because he told the credit card company that he was employed when he wasn't would have given false information. The resulting debt can therefore be excluded if he files for bankruptcy and if the credit card company chooses to assert its rights at a meeting of creditors. In some cases, a creditor will opt not to assert its rights. This usually happens when the cost of the necessary legal actions is higher than the amount of the debt, less any tax credits the company can take against the loss.

A meeting of creditors may also occur as part of a voluntary debt-settlement process. In this case, an entity, usually a company specializing in debt settlement, acts as a mediator between the debtor and the creditors. That entity is attempting to reach a settlement agreement with all creditors at the same time. Generally, the debtor has a set total amount he can pay, which is less than the sum total of his debt. In this case, creditors are fighting for as big a percentage of that amount as they can get.

Depending on the governing jurisdiction, the meeting of creditors may be a physical event at which a representative of the creditor company must appear, or it may be a virtual event, by which date all objections to the proposed settlement or dismissal must be received by the court or other mediating body. If it is a physical event, the creditor may appear or he may hire an attorney or other agent to appear in his place. If it is a virtual event, all objections must be received in the manner stipulated by the ruling body.