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What is a creditor to do?

When a business customer fails to pay on his or her debts, the business--the creditor, has several available remedies to collect the debt from the customer--the debtor. So what about when the debtor files for bankruptcy? What is a creditor to do?

As a bankruptcy attorney for debtors and creditors, I have helped many people get the fresh start they needed and have helped creditors protect their rights through the bankruptcy process.

Bankruptcy is for the honest but unfortunate debtor to get a fresh start. The bankruptcy discharge releases the debtor's personal obligation, their "in personam" liability to pay the debts. However, some debts do not go away but require the creditor to take affirmative steps when it receives a Notice of Bankruptcy Filing. As a general matter, pay attention to all notices you receive from the court or otherwise, as almost all notices in bankruptcy will have a deadline.

On the Notice of Bankruptcy Filing, a creditor will be able to see the case number, what chapter the debtor has filed, and the contact information for the debtor's attorney, the trustee, and the clerks' office.

The Notice of Bankruptcy Filing also details where and when the Meeting of Creditors is scheduled and what the specific deadlines are for the creditor to object to discharge or exemptions. It is absolutely crucial that those deadlines are followed. Once you know the deadlines, it is important to contact an attorney who understands the debtor/creditor process. For a typical consumer case, you want an attorney who can tell you what those deadlines mean and if they apply to your particular circumstance. From there, the attorney can explain what the creditor can do to protect itself through the bankruptcy process.

On that note, I will offer some of the rules of the road that I think all debtors and creditors should know about the bankruptcy process:

Should I contact the debtor?

No, upon filing of the bankruptcy case, a debtor is protected by the bankruptcy automatic stay and the creditor should contact their own attorney. An over-generalization is that the stay prevents any action against the debtor or its property. Willful violations of the automatic stay can subject a creditor to damages and attorney fees.

Should I attend the meeting of creditors?

It depends on the circumstances. Creditors may attend but are not required to do so. Consulting a creditor's attorney, if only briefly, can save a whole lot of time, energy and hassle down the road.

What is a proof of claim?

A proof of claim is how a creditor gets paid through the bankruptcy process. It will state the amount of the debt, the type of debt, and whether that debt is subject to priority under the bankruptcy code. Although filing a proof of claim with the bankruptcy court is a simple process, filing an incorrect proof of claim without the advice of an attorney can lead to objections from the debtor's attorney.

If the debtor is in a Chapter 7 consumer bankruptcy, look to paragraph 10 on the Notice of Bankruptcy Filing. This paragraph states: "No property appears to be available to pay creditors. Therefore, please do not file a proof of claim now. If it later appears that assets are available to pay creditors, the clerk will send you another notice telling you that you may file a proof of claim and stating the deadline." To paraphrase, do not file a proof of claim in a chapter 7 consumer case until told to do so.

In a nutshell, pay attention to your notices and seek the advice of an attorney that understands the complexities of the bankruptcy code. My hope is that this short article has been helpful and that I can continue to write about a topic that has significant implications for all businesses and customers.
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Title Annotation:GUEST OPINION
Author:Kazemba, David
Publication:Wenatchee Business Journal
Date:Feb 1, 2018
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