What is a Gap Creditor? A Comprehensive Legal Overview

Q: Do gap creditors have priority in bankruptcy?

No, gap creditors are prioritized below administrative claimants in bankruptcy proceedings.

Q: Can gap creditors recover their claims?

While gap creditors can submit claims, they may not be treated as administrative expenses, affecting their recovery.

Definition & Meaning

A gap creditor is a lender who provides credit or loans to a debtor during the time between the filing of an involuntary bankruptcy petition and the entry of the order for relief. This period is crucial because it can affect the treatment of the creditor's claim in bankruptcy proceedings. Gap creditors are typically not entitled to have their claims recognized as administrative expenses, meaning they do not receive priority in repayment compared to other administrative claims. Instead, their claims are generally considered to have arisen before the bankruptcy petition was filed.

Table of content

Legal Use & context

Gap creditors play a significant role in bankruptcy law, particularly in involuntary bankruptcy cases. They extend credit to the debtor after the bankruptcy petition is filed but before the court officially recognizes the bankruptcy. This term is mainly relevant in bankruptcy law, where understanding the priority of claims is essential. Users may need to manage forms related to bankruptcy filings, and US Legal Forms offers templates that can assist in this process.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

(Hypothetical example) A supplier provides materials to a company that has just filed for involuntary bankruptcy. The supplier, acting as a gap creditor, extends credit to the company for materials needed to fulfill existing contracts before the court officially recognizes the bankruptcy. The supplier's claim will be treated as a gap claim and will not have the same priority as claims from administrative creditors.

Comparison with related terms

Term	Definition	Key Differences
Administrative Claimant	A creditor whose claim arises from the costs of administering the bankruptcy estate.	Administrative claimants have priority over gap creditors in repayment.
Secured Creditor	A creditor with a legal right to specific property as collateral for a loan.	Secured creditors have a higher priority than both gap and administrative creditors.

Common misunderstandings

What to do if this term applies to you

If you find yourself in a situation involving gap creditors, it is important to understand your rights and obligations. You may want to consult with a legal professional who specializes in bankruptcy law. Additionally, you can explore US Legal Forms for templates that can help you navigate the necessary legal processes effectively.

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Quick facts

Gap creditors are prioritized below administrative claimants.
Claims are generally considered to have accrued before the bankruptcy petition was filed.
Gap creditors may not receive administrative expense allowance.

Key takeaways

Frequently asked questions

What is a gap creditor?

A gap creditor is a lender who extends credit to a debtor between the filing of an involuntary bankruptcy petition and the entry of the order for relief.