Creditors Take Aim at Bankruptcy
For example, let’s say your bankrupt customer, Deadbeat Diner, Inc., owns only one asset—a piece of real estate. Deadbeat owes you $100,000. Deadbeat owes the rest of its creditors, who are unsecured (i.e., they have no security interest in any of Deadbeat’s asset), $500,000. The real estate has a market value of $300,000. In bankruptcy, if Deadbeat gives you a security interest in the property for the amount of its debt to you ($100,000), you will be paid before all other (unsecured) creditors. In other words, upon sale of the real estate, you will receive the full $100,000. Thus, having a security interest in the debtor’s property will allow you to maximize amounts you can receive from bankrupt debtors. Keep in mind that you can only take a security interest before the debtor files for bankruptcy.
3. File a proof of claim. If you receive notice that a customer has filed for bankruptcy and they owe you money, file a proof of claim with the bankruptcy court as soon as possible. If a creditor does not file a proof of claim, it will not receive any payment. There are certain time limitations for when proofs of claims must be filed.
4. Watch for bad faith bankruptcy filings and attack them. You can seek to have a debtor’s bankruptcy filing dismissed if the filing was made in bad faith. If the bankruptcy matter gets dismissed, the debtor’s debt to you will not get discharged. Don’t let debtors who owe you money abuse the bankruptcy process to wipe out your accounts receivable. Be proactive! PPR