What to do if a debtor files for bankruptcy?

What to do if a debtor files for bankruptcy?

| Feb 13, 2021 | Firm News

As a creditor, you deserve to be paid. Collecting from a debtor in California is always a challenge, but the problem is made much worse when the debtor files for bankruptcy relief. As a creditor, it is important to know that even when debtors file for bankruptcy, you have options and you have rights.

You Have Options

While debtors seem to love bankruptcy, it leaves creditors with few options to collect the money owed to them.

If someone who owes your business money files for bankruptcy, you should:

  • Stop collections actions immediately: This step will not help you get your money, but it will help you avoid legal sanctions. Filing for bankruptcy includes the legal protection known as the “automatic stay,” which prohibits collections actions from anyone to whom the debtor owes money. This means you should not call, email or contact the debtor in any way.
  •  File a motion or a lawsuit: There are numerous ways a lawsuit could proceed, depending on the circumstances. If, for example, the debtor put numerous charges or cash advances around the time of filing for bankruptcy, you could receive compensation for that. You could also object to all discharges in a case if there is evidence of perjury or other forms of misrepresentation by the debtor.

These are just a couple of options available to you as a creditor seeking to get paid from a debtor filing for bankruptcy.

You Have Rights

If a debtor files for bankruptcy, you need to be careful, and there is a chance you could receive far less than what you are owed. But you do have rights and you can fight to get the money owed to you.

The best thing to do is talk with an experienced creditors’ attorney as soon as possible to protect your rights.