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2 options for businesses affected by a debtor’s bankruptcy filing

On Behalf of | Dec 2, 2022 | Collection

There are numerous scenarios in which an individual might end up owing your business a significant amount of money. If you provide financing, whether your company offers credit cards or helps people purchase vehicles, the risk is always there for someone to fall behind on their payments.

Non-financial companies often also have unpaid invoices to collect on as well. Service providers could complete a project on someone’s vehicle or home, only to later have the customer refuse payment or write a bad check, for example.

Whatever the reason that someone owes your company money, you may need to take aggressive steps to collect on that debt. If they will not make payments as they should, you may need to take them to court. Unfortunately, some people respond to a creditor lawsuit or intensifying collection activity by filing for personal bankruptcy. Your business may still have two options available when a debtor files bankruptcy while they owe your business money.

Ask the courts to lift the automatic stay

Perhaps you would like to repossess a financed vehicle but failed to do so before the bankruptcy filing, or maybe you want to move forward with a lawsuit against the debtor. In some scenarios, creditors can go to court and ask a judge to lift the automatic stay so that they can resume collection activity on a specific debt even while someone moves forward with their bankruptcy proceedings.

Ask for exclusion from the discharge

There are scenarios in which one business could ask that the courts not include their debt in a bankruptcy discharge. Fraudulent activity, such as taking on new debts days before filing for bankruptcy, would be one of the reasons why you could ask the court to exclude the debt owed to your company from someone’s bankruptcy discharge.

Although it can be very financially beneficial to mount a legal response to a debtor’s pending bankruptcy, there will also be many challenges in this process. From learning your rights as a creditor during the bankruptcy process to making use of the laws that give you alternatives to just remaining passive, there are multiple ways to protect your business from someone discharging a debt instead of repaying it.

Learning more about your rights as a creditor will help you make use of them before bankruptcy eliminates your right to do so.