My Company Received a Notice of Bankruptcy. What Should I Do?
If your company has received a Notice of Bankruptcy, this means that one of your clients or customers (or an affiliated entity) is seeking relief from its debt obligations in the U.S. Bankruptcy Court. If its efforts are successful, this could mean that your company will no longer be able to collect the monies it is owed. What can (and should) you do in this scenario? A Miami bankruptcy litigation attorney at Edelboim Liberman explains.
Determine the Nature of the Bankruptcy Proceeding
One of the first steps you will want to take is to determine the nature of the bankruptcy proceeding. This should be evident from the Notice of Bankruptcy itself. Most business bankruptcies will be one of three types:
- Chapter 7 – Business bankruptcies under Chapter 7 are known as “liquidation” bankruptcies. This means that the focus is generally on using the debtor’s assets to repay its creditors (to the extent possible), with the ultimate result being that the debtor goes out of business.
- Chapter 11 – Business bankruptcies under Chapter 11 are known as “reorganization” bankruptcies. In a Chapter 11 case, the focus is not on winding up the debtor’s operations, but instead on finding a way for the debtor to manage its currently unsustainable financial obligations going forward.
- Subchapter V – Subchapter V allows small businesses to reorganize their debts under Chapter 11 without incurring the costs of a traditional Chapter 11 filing. Creditors’ rights are also more limited in Subchapter V cases. These filings are becoming increasingly common.
The nature of the debtor’s bankruptcy proceeding will play a key role in determining your company’s legal rights and options. A Miami bankruptcy litigation attorney at our firm can discuss these legal rights and options with you in detail.
Determine the Debtor’s Commercial Relationship with Your Company
After determining the nature of the bankruptcy proceeding, you will next want to determine the debtor’s commercial relationship with your company. If you recognize the debtor’s name, this will be simple and straightforward. If you don’t recognize the debtor’s name, you should not simply ignore the Notice of Bankruptcy. The debtor listed your company as a creditor for a reason, and you will want to find out why.
There are several possibilities in this scenario. For example, the debtor could be a parent company of a client or customer, or a client or customer may have been recently acquired by another business. You could also be familiar with the debtor’s trade name but not its formal legal name. Once you identify the debtor, then you can determine the nature of its debt and how much it owes your company.
Make Sure You Know the Deadlines that Apply
Debtors and creditors both have deadlines in Chapter 7, Chapter 11 and Subchapter V bankruptcy cases—and the first deadlines can arrive quickly. With this in mind, you will want to make sure you know the deadlines that apply to your company. If you miss any of these deadlines, you could lose the ability to protect your company’s interests in the bankruptcy proceeding.
Make Sure You Don’t Violate the Automatic Stay
Filing for bankruptcy affords several benefits to debtors. One of these benefits is the imposition of an “automatic stay.” While an automatic stay is in effect, the debtor’s creditors are prohibited from pursuing collection activities unless they qualify for an exception.
Since violating an automatic stay in a Chapter 7, Chapter 11 and Subchapter V bankruptcy case can have serious consequences, you will need to be careful to make sure your company complies. A Miami bankruptcy litigation attorney at our firm can determine if any exceptions apply, and if so, we can assist with enforcing your company’s right to payment as warranted.
File a Proof of Claim
Another important step for protecting your company’s interests in the bankruptcy proceeding will be to file a Proof of Claim. Filing a Proof of Claim will preserve your company’s ability to participate in the bankruptcy process (to the extent possible based on the nature of the debtor’s filing). When filing your company’s Proof of Claim, you will want to include documentation of your company’s debt, including any documentation that helps to establish your company’s priority in the event of a distribution.
Consider the Options for Protecting Your Company’s Claim
Creditors can defend their claims in business bankruptcy proceedings in many cases. If your company has a defense to discharge, you may be able to retain the full value of your company’s claim despite the debtor’s bankruptcy filing. Some examples of defenses to discharge include:
- The debt is ineligible for discharge under the U.S. Bankruptcy Code (the “Code”)
- The debt is “non-dischargeable” under Section 523 or Section 727 of the Code
- Your company has a preference claim under Section 547 of the Code
- The debtor has engaged in fraud in violation of Section 548 of the Code
- The debtor is ineligible to obtain relief through the bankruptcy process
Determining whether your company has a defense to discharge can be challenging. However, it can also be extremely important. Here, too, our attorneys can explain everything you need to know and help you make informed decisions about protecting your company’s financial interests.
Remain Involved in the Debtor’s Bankruptcy Case as Necessary
After taking these preliminary steps, it will be important for your company to remain involved in the debtor’s bankruptcy case as necessary. It is up to creditors to protect their rights during the process. If your company has received a Notice of Bankruptcy and you need to know more about protecting your company’s rights, we encourage you to contact us today.
Schedule a Call with a Miami Bankruptcy Litigation Attorney at Edelboim Lieberman
Do you need to know more about how to protect your company in response to a Notice of Bankruptcy? If so, we invite you to get in touch. To schedule a call with a Miami bankruptcy litigation attorney at Edelboim Lieberman, give us a call at 305-768-9909 or tell us how we can reach you online today.
