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Steps to Follow while Collecting Money from a Bankrupt Client

Clients filing for bankruptcy is very common. If you come to know that one of your clients is seeking bankruptcy to sort out his or her financial problems, don’t be surprised or worried. There are certain rules and regulations in the bankruptcy process that both the debtor and creditor have to follow.
One of the plus points of bankruptcy is that it is not as formal as the typical court giving strict instructions to solve the matter. It is like making a deal and negotiating a resolution in your favor.

So, if your client owes you money, consider the following steps while collecting the debts:

1. Consider the Type of Bankruptcy Filed:
With the type of bankruptcy filed, means the way clients intends to handle the debts. Chapter 11 and Chapter 13 are filed to reorganize the debt. The debtor receives a repayment plan that he or she has to follow to repay the debts. Chapter 11 bankruptcy is used for corporations while Chapter 13 is for sole proprietors and individuals. 
However, Chapter 7 bankruptcy means that the client intends to walk away from as much debt as possible through discharging debts and liquidating assets. The court distributes non-exempt assets among creditors.

2. Limit or Stop the Contact Entirely:  
One the bankruptcy is filed, stop the contact immediately to collect the money and collection activities. Otherwise, you will be breaking the bankruptcy code and may be sued. This is regardless of the fact that you have filed a case against the client because the case stays till the completion of the bankruptcy. 
If you are living in Chicago and want to know how your debts will be handled,
 you can contact the bankruptcy attorney in Chicago. 

3. Don’t Forget Doing a Cost-Benefit Analysis: 
It is wise to do a cost-benefit analysis before collecting a debt. That means to determine whether it is worth your time and energy and will you really get your money back or not. Take for example, if a business grosses more than $500,000 but has debts over $10 million, with a long list of creditors, it is more likely that you will not get your money back. 
Moreover, the consumer and or small companies don’t have tangible assets that can be sold by the trustee and distributed among the creditors.

4. Consider Filing a Proof of Claim:
If the creditors feel that they have a chance of success in receiving a portion of a debt, they should file a proof of claim. This reflects the creditor’s desire should be the part of the bankruptcy proceeding. In this case, you, as a creditor, need to submit contracts, business records, and communications to verify the debt. Don’t skip this step, otherwise, you will not be repaid. After the bankruptcy proceedings, the trustee is asked to pay creditors from the rest of the funds. 

5. Attend Creditors Meetings: 
The meetings with the court-appointed trustee, debtors, and creditors are essential to attend. During the meeting, the debtors explain how the situation got worse, and what is going to be done about it. You can also object the debt repayment or reorganization plan. 
While considering to recover the debt amount, the right approach is to consult the bankruptcy attorney, to take the right course of action.


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