While bankruptcy law provides protection for people who are in debt, it also allows creditors to recoup at least some of their money, when possible. The chances of your business being repaid will depend on several things, including the type of debt you're owed and what type of bankruptcy procedure the person who owes you the money has chosen.
Creditors' Rights in Bankruptcy
As a creditor, you have rights under the law. You have the right to be heard in court and to protest if you think the debtor hasn't been honest about his situation.
If money becomes available to pay some of the debts, you have the right to ask for your share, though there is no guarantee that you'll receive it. High-priority debts, such as child support and student loans, are paid first, so the funds may run out before lower-priority debts can be paid.
Automatic Stay on Collections
As soon as a person files for bankruptcy, the court issues an order called an "automatic stay". This means you can't try to collect your money by calling the debtor or writing to him. Instead, a court-appointed trustee will work with you and the other creditors. If money becomes available, the trustee will see that you get your share.
Types of Bankruptcy
There are several types of bankruptcy procedures, each named after different chapters of the law. If the person who owes you money files under Chapter 7, he's asking the court to wipe out most of his debts. In return, most of his belongings will be sold to pay back at least some of the money he owes. If he files under Chapter 11, 12 or 13, he keeps his belongings and pays off at least a part of the debts over time.
Types of Debts
Your chances of being repaid depend on the type of debt owed to you. If it is something like a mortgage or a car loan, you'll be paid when the house or car – the collateral – is sold. If you gave the person credit without asking for collateral, the debt is unsecured. Credit card debt is an example of an unsecured loan.
In that case, you might get some of your money back, or you might get nothing at all. The law surrounding bankruptcy is complicated. Plus, the facts of each case are unique. This article introduces the topic. For more detailed, specific information, please contact a bankruptcy lawyer.
A Business Bankruptcy Lawyer Can Help
The law surrounding secured, unsecured and under-secured claims in business bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.