When a customer or client owes you money, it can be frustrating and even distressing to learn that the customer has filed for bankruptcy. It is important to remember that, just because a person or entity files for bankruptcy, creditors still may be able to collect some or all of the money owed to them. However, it is important to know what creditors can do, as well as what they cannot do, when a customer or client files for bankruptcy. The following is a list of tips from an Inc.com article for creditors.
You Must Immediately Stop Trying to Collect on the Debt
When a person or party files for bankruptcy, all creditors and debt collectors must immediately stop trying to collect on the debt because of the automatic stay under the U.S. Bankruptcy Code. The automatic stay is a powerful tool for debtors who file for bankruptcy because it requires creditors and debt collectors to immediately cease collection activities. If a creditor attempts to continue collection actions of any type, the creditor can face a violation and substantial fees.
Understand How the Type of Bankruptcy is Likely to Affect You
There are substantial differences between Chapter 7 bankruptcy filings (a liquidation bankruptcy) and reorganization bankruptcies under Chapter 11 or Chapter 13. When a debtor files for Chapter 7 bankruptcy, all non-exempt assets belonging to the debtor will be liquidation, and creditors will be paid from the amount of money obtained through the liquidation. However, there is an order of paying creditors, and priority debt gets handled first. Differently, in a reorganization bankruptcy, an individual or a business filing under Chapter 13 or Chapter 11 respectively will develop a repayment plan to get back on track financially. While a creditor ultimately may not see all of the money it is owed under a reorganization bankruptcy, the repayment plan will involve steps for repaying creditors a particular amount over a period of time.
You Will Need to File a Proof of Claim
As a creditor you will have received notice of the bankruptcy filing, and that notice will provide you with information about the date by which you must file a proof of claim. A proof of claim is simply a document that a creditor files with the bankruptcy court to say that she or he has a claim against the bankruptcy estate. The proof of claim details the amount of money the debtor owes along with other information about the debt, and it clarifies whether the debt is a priority debt.
You Can Ask the Debtor Questions at the Meeting of Creditors
The meeting of creditors, which is also known as a “341 hearing” since its requirement arises under Section 341 of the U.S. Bankruptcy Code, is a time that creditors can meet with the bankruptcy trustee and ask questions of the debtor.
Creditors Have the Right to Review a Repayment Plan in a Reorganization Bankruptcy
If the debtor has filed for Chapter 11 bankruptcy or Chapter 13 bankruptcy, the creditor has a right to review the repayment plan. More than half of the creditors must approve the repayment plan in order for the court to approve it.
Contact a Columbia Creditors’ Rights Attorney
Do you have questions about your rights as a creditor when a debtor files for bankruptcy? An experienced Columbia creditors’ rights attorney can help. Contact Crawford & von Keller, LLC today.