In 2015, nearly 820,000 bankruptcy filings were filed. If you’ve received the dreaded notice that a client has filed for bankruptcy, there are a few things you absolutely must do. A client’s bankruptcy does not necessarily mean that you have no rights and that you will not receive any payment for the amount the client owes you. However, there are protocols to follow.
Stop contacting the customer
A bankruptcy establishes different rules for communication between the debtor and the creditor. From the moment you receive a bankruptcy notice, you are no longer allowed to contact the debtor and request payment. This is called an automatic stay. A trustee is assigned to the account and this trustee oversees all assets and debts of the debtor.
Although the bankruptcy notice will usually include the trustee’s contact information, you probably won’t be able to get additional information about the bankruptcy before the creditors’ meeting. Please also note that the trustee’s office will not provide you with legal advice.
Get a bankruptcy lawyer
Bankruptcy attorneys not only represent debtors, they also represent creditors. And bankruptcy law is complicated. If the amount at stake is a substantial sum, you may want to have a lawyer at the table with you.
Another sobering part of bankruptcy law is the preference clause, which means that a debtor cannot prefer one creditor over another. Because of this clause in the bankruptcy code, a trustee will return to each creditor that the debtor paid within the 90-day period prior to the bankruptcy filing and request for refund. If the creditor is a family member, business partner, or other insider, the trustee can go back a full year to collect the refund. If he receives such a demand letter, a bankruptcy attorney can help him present a defense.
Submit a proof of claim
The bankruptcy notice you receive will include information about how much the debtor believes they owe you, why they are owed that amount, and when a proof of claim must be filed. The due date for proof of claim will be listed. It is very important that you submit this proof of claim; if you do not, you will lose any right to receive payment. In a proof of claim form, you state that you understand what is owed to you. This form is quite simple and can be done without a lawyer.
Attend the Meeting of Creditors
Creditors in a bankruptcy will be invited to a meeting of creditors, sometimes called a 341 hearing. At this meeting, the debtor must explain how they came to a bankruptcy situation. Creditors can also ask the debtor questions. In addition, a creditor can object to the reorganization or payment plan if he or she feels that your debt is not being treated fairly.
A bankruptcy notice is never welcome, but there are a few things you can do to ensure the largest possible payment. After all, you are owed some hard-earned money.
