What are your rights when a customer files bankruptcy?

When a customer who owes your business a substantial amount of money files for bankruptcy, you have a tough choice to make. Do you pursue the debt into bankruptcy or do you chalk off the money owed as a loss? Too many business owners chalk the money up as a loss, fearing that going through the collection proceedings will expend even more resources they may or may not have. However, this may not be the best decision for you. FindLaw details what you can do if your North Carolina business decides to pursue a customer's debt through bankruptcy.

Though every bankruptcy is different, pursuing debts into it are surprisingly routine. The first thing you need to do is stop collection attempts immediately and comply with the automatic stay. Failure to do so may mean you forfeit your rights to the past due amount entirely.

Next, review the debtor's paperwork. This is public knowledge and should be easily accessible. The paperwork should reveal which assets the debtor plans to include in his or her bankruptcy and which he or she believes are exempt. The papers will also provide a list of creditors, how much the debtor owes them, and their standing (secured or unsecured). Knowing this information can help you determine if pursuing the debt is a sound financial decision or a waste of time.

The next step is to meet with the debtor. You can do this via the creditors' hearing in which creditors have the chance to ask the debtor about his or her claim and what property he or she owes that can satisfy the claim. Few creditors actually show up to this hearing and therefore forfeit their rights to repayment. For this reason, it would be worth your while to attend.

If, after the hearing, you decide to follow through with a claim, file a proof of claim. This document informs the trustee that you wish to be a part of the bankruptcy proceedings. When you file your claim, do not forget to include documents that prove the legitimacy of your claim, such as agreements, purchase orders, and the like.

Finally, attend the bankruptcy hearing. It is at this hearing that the judge designs and implements a repayment plan. It is also your only opportunity to object to a debtor's plan.

After the hearing, all you can do is wait and let the bankruptcy unfold. While you have the right to follow up with the bankruptcy trustee, you need to be careful not to cross the line to harassment.

The information in this post is for educational purposes only. It is not meant to serve as legal advice. 

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