You may assume that once a debtor files for bankruptcy, you are out of luck collecting money, but that is a big misconception.
If a debtor files for bankruptcy, there are some things you need to do to protect your rights as a creditor.
1. Ensure you obtain copies of the bankruptcy petition to see the details of what the debtor filed with the bankruptcy court.
And be sure to stop all collection efforts unless and until the bankruptcy trustee or the Court gives you permission to try to collect that debt. If you are taking any steps to enforce the judgment and collect, such as garnishments of bank accounts or wages, make sure you take the appropriate steps to stop all garnishments if required.
Many debtors file bankruptcy proceedings solely to stop collection efforts and then fail to follow through on the process and documentation required to receive a discharge of the debt. Therefore, you must monitor the bankruptcy. Doing so will let you know whether the judgment has been discharged or the bankruptcy was dismissed without a discharge. If the bankruptcy case is dismissed, you will be able to continue with collection efforts.
2. When a debtor files for bankruptcy, make sure that you are listed on the petition as a Creditor.
As a creditor, you will receive notices from the bankruptcy court on when you should attend court to see what assets there are and what money you will be entitled to. Often debtors assume that by filing bankruptcy, all of their debts will be forgiven, and they will keep all their assets. However, depending on the type of bankruptcy filed and the assets they have, and how titled, there are times when you may still get paid.
3. After a debtor files a bankruptcy petition, they must also submit a schedule of their scheduled assets and liabilities and list information regarding their current income and expenditures.
As a creditor, you are entitled to a copy of these documents. If bankruptcy is not granted, these documents will be your roadmap to pursuing assets and wages. These required court documents are a great resource to ensure you get paid if bankruptcy doesn’t happen.
4. Every bankruptcy has a Trustee appointed by the court.
This will be the person who oversees the bankruptcy process before it goes before a judge. As a creditor, reach out to the Trustee to ensure you are included as a creditor and receive copies of everything filed with the court. The Trustee will also schedule a meeting of creditors where the debtors are asked various questions about the bankruptcy. You must attend this meeting as this is also your opportunity to ask questions about the debtor’s assets. As a creditor, you will not be given another chance to ask questions about the debtor’s assets.
Federal and state rules govern the bankruptcy process and are incredibly complex. As a creditor, you must ensure that you are protecting your judgment and all rights to any assets the debtor has. If you need to become more familiar with the process, you should hire an experienced collections attorney who will monitor the bankruptcy petition so that you have the correct information and know when you must either forgive the debt or can begin pursuing again. Don’t stop efforts as soon as a petition is filed; change your course of action, get the information you are entitled to, and follow through to protect yourself.
About Andalman & Flynn Collections: For decades, businesses and professionals have been turning to the experienced collections attorneys at Andalman & Flynn for their debt recovery needs. A licensed collections agency, their experienced team successfully navigates the complex laws surrounding debt collection practices. The firm combines cutting-edge technology with savvy, effective debt resolution methods that result in high success rates and fast recovery times. For more information, please visit www.andalmanflynncollections.com.