Small businesses sit at the heart of the American economy. In order for any business to thrive, they must be paid for their products and services. Business is often facilitated through the extension of credit. Common examples include car dealers, mechanical tradespersons, brick-and-mortar retailers, landlords, and rent-to-own mortgagees. Many more operate on a service-before-fee model, like contractors, plumbers, electricians, and healthcare professionals. When compared against big-box retailers and larger businesses – the kind of large conglomerates with familiar names – the small businesses struggle the most when their customers do not pay. Big businesses have a decided advantage over small business because of their greater reach, deeper pockets, and greater experience, all of which enable them to better absorb losses and pay qualified professionals to assist them with debt collection. What, then, is the small business to do when they receive a notice that one of their unpaid customers has filed for bankruptcy protection? That is precisely the question that my article seeks to answer.
Let’s start with the basics. When a debtor files a bankruptcy petition, they are availing themselves of certain protections to alleviate their financial strain in exchange for full disclosure of their assets and their debts. The Bankruptcy Code seeks to make a fair and equitable distribution and ultimately discharge the debtor from the debts that weigh them down, while still treating creditors fairly. Every debtor’s bankruptcy petition must list all of their creditors for two reasons. The first reason is that creditors will receive notice of the debtor’s bankruptcy. The form and content of the notice will vary depending on which chapter of bankruptcy the debtor filed. The second reason is to notify all creditors that the debtor is protected by the benefit of the “Automatic Stay,” which operates to stop any attempt to collect a debt owed prior to filing for bankruptcy protection. Many small business owners are immediately confused and alarmed when they receive this notice of a debtor’s bankruptcy. They have many questions and want to protect their interests. So, what do you do if you are a small, medium, or large business who receives a notice of bankruptcy filing? Excellent question.
When you receive a notice of bankruptcy filing, the two most important things are first to stop all collection attempts from the debtor who filed for bankruptcy and, second, to gather all your records on that particular account to consult with a qualified attorney to determine your options. Be advised: if you continue to pursue collection, you may face consequences and monetary sanctions from the Bankruptcy Court for violating the Automatic Stay. A qualified attorney can guide you through the process and help protect your rights. In my experience as a qualified attorney, I know the number one question on the top of a small business owner’s mind when they receive a notice of bankruptcy filing is whether they can get paid, and if so, how do they accomplish it. Let’s begin by reviewing, at a high-level, the kinds services a qualified attorney, like myself, may provide to small business creditors.
At the highest level, I review the debtor’s case and provide options for the small business creditor on how to best protect their interests. This kind of review will include determining the classification of the small business creditor’s claim against the debtor – secured (i.e. a home or a vehicle), priority (i.e. taxes or child support), or general unsecured (i.e. personal loans, credit cards, medical bills, etc.) – and also whether the claim is dischargeable in bankruptcy. At a deeper level, I also represent the small business creditor’s interests through any or all of the following:
- Attend the §341 Meeting of Creditors and elicit appropriate testimony from the debtor to protect a creditor’s rights;
- File objections in the debtor’s case if the creditor’s rights are improperly abrogated;
- File an appropriate proof of claim to ensure payment;
- File Motions for Relief from the Automatic Stay to enable the small business creditor to pursue their collection and other state-law remedies, where appropriate;
- Draft and review reaffirmation agreements to ensure lenders receive payment for secured debts;
- Advise on debtor’s stated intentions to retain or surrender secured property to the small business creditor;
- Advise on the debtor’s stated intentions to assume or reject unexpired contracts and leases;
- Review Chapter 11, 12, and 13 repayment plans to ensure proper treatment of the small business creditor’s claim; and
- Calculate pro rata distributions to determine how much a small business creditor may be entitled to receive in a distribution from a proposed or confirmed bankruptcy plan.
Bankruptcy is a serious legal proceeding with real legal rights at stake. An old saying posits that “the law abhors those who sleep on their rights.” As a small business, every dollar counts in the bottom line. Just like hiring a qualified accountant to keep your books and financial records in order, so, too, should a small business hire a qualified bankruptcy attorney to protect their bottom-line. A qualified bankruptcy attorney, like those at Mooney Law, will analyze your unique situation, provide focused solutions, and provide clear advice at affordable rates. As a dedicated bankruptcy attorney, I represent both debtors and creditors in all manner of debt positions. As a dedicated bankruptcy attorney, I focus my time on client-focused results and bring a robust analysis to each and every case.
Bankruptcy is fundamentally about fairness to debtors and creditors. Debtors most often have a qualified attorney who represents them to achieve a financial fresh start through bankruptcy. Creditors, too, should have qualified representation to ensure they are properly informed and they receive the maximum compensation available to them through the bankruptcy process. A qualified bankruptcy attorney can, and should, be an integral part of every small business’s toolkit. The experienced, proven, and trusted bankruptcy attorneys at Mooney Law stand ready to assist you and answer your questions. To schedule a consultation, call us today at 833-MOONEYLAW or at 717-200-HELP. You can also visit the firm website at https://www.mooney4law.com.
