If you've recently received a notice that one of your business clients has filed for chapter 11 bankruptcy, you might be wondering what this means to you--especially if this client owes you money. How can you ensure that you're eventually repaid? What steps do you need to follow in the meantime? By knowing what to do and what not to do when you receive such a notice about one of your clients, you can ensure the situation is handled properly.
DO Stop Collections
First and foremost, if you have any collections out against the client, you'll need to stop these right away. No matter how much you're owed, it's illegal to pursue collections on an individual or organization who has filed for bankruptcy. If you continue to attempt collections, you could even end up having to forfeit any debts that are owed to you. The best thing you can do in the meantime is to stop your collections process on the client and make note of how much you're owed, along with the original due dates of the payments. This information will be useful later on.
DO File Proof of Claim Forms
On the notice you received regarding your client's bankruptcy filing, there should be a due date for submitting a proof of claim form. This form must be submitted by you to the court, and the purpose of this form is to officially declare how much money the client owes you. Make sure to fill out this form and file it with the appropriate court by the date listed on the notice. Otherwise, you may not be able to collect the debts owed to you. The form is only about a page long and shouldn't take you long to fill out.
DON'T Miss the Creditor Meeting
Once the court receives your proof of claim form, you should be contacted to set up a creditor meeting. During this meeting, you will have a chance to speak with the client (or the client's legal representation, as the case may be) in an attempt to work out some kind of payment plan. You will not want to miss this meeting, as this will be your only chance to negotiate with the client and ask any questions you may have to his or her attorney (such as Richard S. Ross - Bankruptcy Attorney). During this meeting, you should be able to come up with a repayment plan and get it signed in writing to ensure you get your money back.
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