Suppose you’ve been doing business with a company that owes your Maine-based business money or has been late in paying for services you have provided. You might have even filed a lawsuit to obtain the payments. But then you receive a notice that the company has filed for bankruptcy.
Filler & Associates has come up with some of your small business’ rights and responsibilities in this situation.
Know the Type of Bankruptcy Filed
First, your business should learn what bankruptcy chapter the company has filed for. The two likely chapters are Chapter 7 and Chapter 11.
In a Chapter 7 bankruptcy, the company liquidates and creditors receive payment in priority of their claim. In a Chapter 11 bankruptcy, the company attempts to work out the bankruptcy and negotiate terms with the creditors upon approval of the court.
Each of the chapters has different procedures that must be followed.
Filing a Claim
When the company files for bankruptcy, it is required to provide a list of its known creditors. This is how your small business will be notified. Upon receiving notice of the bankruptcy, you need to file a proof of claim. This is an official form filed by a creditor that describes the reason the debtor owes the creditor money.
After filing a claim as a creditor you can attend the creditors’, or 341, meeting. During this meeting, which is required by Section 341 of the Bankruptcy Code, the debtor is questioned under oath by creditors, a trustee, an examiner, or the U.S. trustee about their financial affairs.
How Creditors Are Paid
Unsecured claims are prioritized to the order in which they are to be paid. Secured claims are treated differently.
A priority is the Bankruptcy Code’s statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there isn’t enough money to pay all claims in full. A priority claim is an unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Find out whether your claim should be prioritized.
When someone files for bankruptcy, there is an automatic stay, which is an injunction that automatically stops all collection activity against the debtor from the moment a bankruptcy petition is filed. A creditor can motion to lift the automatic stay, to allow the creditor to take action against the debtor or the debtor’s property that would otherwise be prohibited by the automatic stay. Whether or not the motion is granted depends on the facts and legal support for the motion.
Discharging of Debts
Remember, the debtor is attempting to discharge its debts. A discharge prevents the creditors owed those debts from taking any action against the debtor to collect the debts. This includes communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.
Therefore, it is extremely important for you to take action upon receiving notice of the bankruptcy, as well as being actively involved in the proceeding to protect your rights. Consult with Filler & Associates about these critical issues.