We have discussed the legal aspects of collecting debts from customers or clients that have gone bankrupt several times in our blog. As we highlighted, these cases could result in business litigation, but it is often wiser to focus on collecting outside of a legal setting.
As you know, those engaged in bankruptcy have legal rights that could prevent you from collecting. However, you still have an array of options at your disposal that could return at least a portion of what is owed to you.
Take these steps when you find out a client is bankrupt
The first thing you must do is stop contacting the debtor. They are entitled to protection against creditor phone calls and letters once they have initiated bankruptcy proceedings. Three next steps to consider taking include:
- Do a cost-benefit analysis: Look at the situation objectively to determine if it will cost you more to act than to write off the debt. Chances are, there is a line of other businesses also wanting to collect from this customer.
- File a proof of claim: Make sure to file a proof of claim with the bankruptcy court to solidify your right to collect. If you fail to take this step, you will have even more trouble collecting your money.
- Attend the 341 creditor meeting: Attend the 341 creditor meeting to see if the debtor has made a repayment plan and how it will affect the debt. You can ask questions during the meeting and oppose repayment plans that do not address your needs.
We also recommend learning more about the complex laws associated with collecting past due debts. Accurate and up-to-date legal knowledge may not only facilitate the collection of debts but can help you avoid similar situations in the future.