Plenty of people file for bankruptcy at some point or another. This only becomes a problem for you if the person is a client of yours. If this person owes you money, you may think that a bankruptcy filing will prevent you from ever getting that debt repaid. This is what many companies think, and, because of this, large amounts of money are lost by companies who didn’t think it was worth it to try and recover their money or property. Knowing that you can come out on top when a client is experiencing bankruptcy is the first step. To make sure you get the best outcome for your business, you need to understand how the bankruptcy process works and what role you can play in it.
Pay Attention to the Automatic Stay
At the beginning of bankruptcy proceedings, the court will issue an “automatic stay,” which temporarily prevents creditors from pursuing repayment of debts from the client. Make sure that you and anyone who collects money on your behalf understands the importance of halting contact with the bankrupt person. If you don’t pay attention to this part of the process, you will violate the bankruptcy code and risk being sued.
Learn as Much as Possible About Your Client’s Debt
Many companies don’t bother to take the time to understand the client’s debt. You can learn more about the situation by reviewing the bankruptcy paperwork, where you can see a list of other creditors and a breakdown of the person’s property that is subject to and protected from bankruptcy. You may also be able to attend a meeting with the debtor to further examine the nature of his or her financial situation. You may be at an advantage if you involve yourself in these areas, because not all companies will think that it is worth getting involved.
File the Right Paperwork
It shouldn’t be a surprise to anyone that bankruptcy proceedings involve paperwork. Here are three terms you should know.
- Administrative Claim: File this if the sale for the amount that you are owed was made within 20 days of a chapter 11 bankruptcy filing. This may give you a higher priority above other creditors.
- Letter of Reclamation: If you are trying to reclaim goods, which you can do if the items in question were purchased within 45 days of the delivery of goods, start by sending a letter of reclamation, followed by getting an order of reclamation.
- Proof of Claim: This particular document officially states your wish to be involved with the bankruptcy process. You can include documentation that backs up the existence of a debt owed to you.
Find Out How Much Control You Can Have
One way you can improve your chances of being repaid is to find out if you can be appointed to the Creditor’s Committee, a collection of the seven largest creditors who can have a say in the repayment of debts. Being on this committee gives you more control in the process and better chances of getting a positive outcome for your business.
Be Prepared to Wait
Even if you abide by the bankruptcy process and follow the required steps, you may still have to wait to be repaid. The amount of time you will wait depends on the nature of the debt owed to you. Also, don’t expect to be repaid in full. The actual amount may be a varying number of cents per dollar originally owed.
You aren’t powerless if a client declares bankruptcy. It is still possible to get at least a portion of your money back, even though it may require some time and effort on your part. Consider whether the amount of the debt is worth it to get involved in the bankruptcy process, then consult these steps to help you navigate the proceedings and achieve the best possible results.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.