Every business that extends credit has had to deal with customers filing bankruptcy. If you happen to be a newly established small business owner who has just received a notice that one of your has filed or is going to file bankruptcy, you are probably so mad you can’t see straight.
The debtor has the benefit of an “automatic stay” immediately upon filing a bankruptcy petition. That stops you from taking any further action to try to collect the debt unless or until the bankruptcy court decides to the contrary.
What can you do in this situation?
File a Proof of Claim
You should at least take steps to file a timely file a Proof of Claim in the bankruptcy.
In the usual case, creditors will receive a notice of the bankruptcy that will have a form for the proof of claim on the backside of the notice. The notice should provide you with instructions on how to fill out the form and give you a deadline by when it must be filed. By filing a Proof of Claim, you’ll be included with the list of creditors who may eventually end up being paid a slice of the remaining pie of the debtor’s assets.
Is There Someone Else You Can Go After?
If you were lucky enough to have someone personally guarantee your account, making a demand on that person would naturally be the next step.
Are there any co-debtors? The most common example may be spouses who are “jointly and severally liable” on the same debt (meaning that you can go after one or both of them for the whole amount owed). Even if the spouses happen to be divorced and only one of them ran up the debt obligation, it’s possible that they may both be held liable for the debt if they were married at the time either of them signed the paperwork.
Are there any possible remedies against the management or owners of any business that owes you money? This is something you should explore with legal counsel.
Are There Other Alternatives?
There are many different options you can pursue as a creditor in a bankruptcy. They include:
* Petitioning the bankruptcy court for relief from the automatic stay. This may encourage the debtor to make arrangements for paying you in an amount at least equal to the value of your collateral.
* Request permission from the bankruptcy court to continue with any lawsuit you’d already started at the time the bankruptcy was filed. A judgment creditor (someone who has a judgment against the debtor) may be repaid sooner than a general unsecured creditor.
* Petition to have the bankruptcy dismissed, if the debtor isn’t complying with the bankruptcy rules or the orders of the bankruptcy court
* Petition the bankruptcy court to create or be a part of a creditors committee to oversee the operations of the bankruptcy debtor
* Petition to have a bankruptcy trustee appointed if the debtor filed a Chapter 11 proceeding that generally doesn’t require that a trustee be appointed
* Sue other creditors to try to force them to give money back to the bankruptcy proceeding if they were paid in “preference” to other creditors. A “preference” is a preferential payment that a debtor makes on old debt within three months of filing bankruptcy (or within a year if the payment is made to a family member or some other insider who has a special relationship with the debtor).
* Petition the bankruptcy court to deny a discharge of the debt in whole or in part, if you think the debtor has acted fraudulently.
When Should a Creditor Pursue One of These Remedies?
In deciding if you want to pursue the matter further, consider:
* How much money is involved? If this is but one of your accounts out of hundreds, it may not be worthwhile pursuing beyond filing a proof of claim – unless substantial dollars are involved.
* Is there enough money involved to hire a lawyer to represent you in bankruptcy court? The bankruptcy laws are so complicated that most lawyers steer completely clear of bankruptcy court. The average businessman will be a fish out of water in bankruptcy court. If your business is organized as a separate legal entity like a corporation, you may also have to hire a lawyer to represent your company in court.
* Are you a secured or unsecured creditor? If you are an unsecured creditor (meaning you don’t have any collateral you can take if the debt isn’t paid) and the debtor’s liabilities greatly exceed the assets, you may be pursuing a worthless cause. If you have a security interest in collateral that still has some value, it may be worth going the next step.
* How much time can you afford to spend on the matter? Even if you hire an attorney, pursuing a debtor in bankruptcy is going to require a lot of your time. You may have to attend hearings and possibly even participate on a creditors’ committee.
* What kind of bankruptcy is involved? The likelihood of a creditor getting paid is going to depend on whether or not the debtor is simply giving up the ghost and trying to obtain a discharge of all his or her debts (for example, with a Chapter 7 bankruptcy) or is trying to restructure or reorganize debts and eventually pay them off (for example, a Chapter 11 or Chapter 13 bankruptcy).
http://bankruptcy.lawyers.com/commercial-bankruptcy/Dealing-with-Your-Customers-Bankruptcy.html
