Party in Interest

By Daisy Rogozinsky
/
June 13, 2022

A bankruptcy case has a number of parties who are considered to be parties in interest. In this article, we’ll define the term “party in interest” and explain the implications of this term on bankruptcy cases. 

Key Takeaways

  • “Party in interest” is a general legal term usually referring to the party who will benefit from an action’s final outcome
  • In bankruptcy law, a party in interest is any party to a matter in a bankruptcy case with standing to be heard in court
  • Parties in interest to bankruptcy cases include debtors, trustees, and creditors 
  • The Bankruptcy Code does not explicitly define what makes somebody a party in interest
  • Based on precedent, bankruptcy courts have decided that in order to qualify as a party in interest, a person’s pecuniary interests must be directly affected by the bankruptcy proceedings

What Is a Party in Interest?

The legal term “party in interest” has multiple meanings. It is usually a person or entity who is entitled under the substantive law to enforce the right sued upon and who generally, but not necessarily, benefits from the lawsuit or legal action’s final outcome. 

Party in Interest in Bankruptcy Law

In the context of bankruptcy, a party in interest is a party to a matter in a bankruptcy case with standing to be heard in court. Parties in interest in bankruptcy cases usually include the debtor, the creditors, and the bankruptcy trustee. 

A larger list of parties who may be considered parties in interest in a bankruptcy case include:

  • the debtor
  • the trustee
  • any indenture trustee
  • a creditor
  • an equity security holder
  • a creditors’ committee
  • an equity security holders’ committee

This matter is mentioned in section 1109(b) of the Bankruptcy Code, reading, “A party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.” 

However, the Bankruptcy Code does not officially define what a party in interest is. As such, bankruptcy courts have had to look to precedent to determine who is and is not considered a party in interest. In the past, the bankruptcy court has concluded that a consistent definition of party in interest included all persons whose pecuniary interests are directly affected by the bankruptcy proceedings. 

The implication of this is that not all parties who disagree with the way a debtor proposes to settle a matter have the right to legally oppose it. Parties who are not creditors or equity holders must be able to demonstrate that they have a pecuniary interest that will be directly affected by the debtor’s actions before they can object to the relief that the debtor seeks.

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