Someone who owes me money filed for bankruptcy. What should I do?
So, you received an official letter from the Bankruptcy Court informing you that someone – who presumably owes you money – has filed for bankruptcy. The notice also states that you may appear at the meeting of creditors. What should you do?
First of all, STOP. If you are taking any actions to collect the debt (be it a lawsuit, phone calls, collection letters, etc.), those actions need to terminate immediately. 99.9% of the time, the debtor is protected by an automatic stay that prohibits you from taking any actions to collect a debt outside of formal bankruptcy procedures. If you do so anyway, you could be sued for violating the automatic stay.
The next thing you should do is contact an attorney experienced in bankruptcy law to determine your rights and responsibilities. This way, you don’t waste your time and money, nor will you waste the bankruptcy court’s time chasing down something you can’t get anyway. But assuming you can’t afford to hire an attorney, here are some general principles that you should know…
Most people want to know one thing above all else: “Will I get paid?”
First, look to see if the debtor has filed a Chapter 7 or Chapter 13 Bankruptcy. If they filed a Chapter 13 Bankruptcy, there will be a 3-5 year repayment plan. You can file a proof of claim in this case in order to be paid out of the bankruptcy estate. No creditor gets paid if they don’t file a proof of claim on-time, and you will have a limited amount of time to file a claim. Only certain types of creditors are entitled to be paid in full. The majority of creditors fall within a class of creditors referred to as “general unsecured”. These creditors are typically paid a percentage of their claim based on the debtor’s income and other factors. These creditors are also paid last, after any priority and secured creditors.
If the debtor filed Chapter 7 Bankruptcy, chances are that you are not going to get paid – at least not through the bankruptcy. The only time creditors get paid in a Chapter 7 Bankruptcy is if the trustee finds assets that he can liquidate for the benefit of creditors. If the trustee finds assets, you will be sent a separate notice informing you to file a proof of claim.
If you do not get paid in the bankruptcy, can you collect outside of bankruptcy? Generally not. If the debtor receives a discharge, you cannot pursue him for the debt unless the debt falls within one of the types of non-dischargeable debts. You should consult an attorney to determine if your debt meets the criteria for an exception to discharge. If the debt is discharged but you try to collect anyway, you could be sued for violating the discharge injunction.
“But I have a judgment in state court!”
Sorry, but that doesn’t matter. Most civil judgments are no different than a credit card or personal loan. They are dischargeable. Of course, there are exceptions, but having a judgment doesn’t automatically entitle you to get paid. To find out if your judgment is non-dischargeable, speak to an attorney.
Remember that if you choose not to hire an attorney, that doesn’t mean the judge or the trustee can give you legal advice. If you choose to act alone and without seeking legal advice, you are responsible for the consequences.
“Should I attend the meeting of creditors?”
You certainly have the right to. But most people show up thinking that they’re going to get something out of it, and wind up walking away empty handed and irritated that they wasted a trip. Here are some pointers for the sec. 341 meeting of creditors…
The purpose of the meeting of creditors is not to determine whether your debt is dischargeable, and the trustee doesn’t have the authority to make that determination anyway.
The purpose of the meeting of creditors is not to file a claim or to get paid. At best, the trustee can tell you if he thinks there will be funds available for your claim, but he won’t be able to say that with absolute certainty.
Don’t go to the hearing just for the purpose of humiliating or berating the debtor. At best, you’re wasting your time. You’re probably going to piss off the trustee for wasting his time. And if you go overboard, you could wind up in trouble.
The best reason to go to the meeting of creditors is if you believe the debtor has concealed income or assets. You don’t have to have proof, but it would certainly help if you do. Without proof, the trustee may assume you’re trying to stir up trouble and waste time. You may also ask questions of the debtor if you believe it may have some impact on dischargeability or your claim. Again, it’s best to speak to an attorney before doing this.