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How do I get paid when my customer files for bankruptcy?

One of the most frustrating things you may deal with in your business is waiting for clients or customers to pay their bills. If you have a tight budget, overdue payments may create some tense moments as you figure out how to meet your own obligations. You likely have a system in place for requesting payment, including sending out invoices, followed by reminders and, finally, warnings.

For some customers, this is enough to spur them into sending you money, even if it is a partial payment until they catch up. However, what are your rights when a customer who owes you money declares bankruptcy?

Proof of claim

Bankruptcy protection is often a blessing to those who are drowning in debt. For the businesses to whom they owe money, however, learning that a customer or client has filed for creditor protection can mean frustration and even panic. You may believe you have no choice but to write it off as a loss and try to move forward.

However, you may have alternatives for claiming at least some of the money your customer owes if the trustee in charge of the bankruptcy determines that the petition is an asset case. This means that the filer has more assets than he or she can protect, and those assets will be liquidated to pay creditors.

In order for the court to consider you for a share in those liquidated assets, you must follow these steps:

  • Obtain a proof of claim form.
  • Complete the form accurately.
  • Indicate if the debt is secured or unsecured.
  • Indicate if the debt is a priority, such as a child support payment.
  • Include any documentation to support your claim.
  • File the form by the deadline.

Claims trading is another alternative. Traders look for asset cases that might be profitable in one way or another, and they will pay you to transfer your claim to them. Of course, there are legal requirements for such a deal, so discussing this plan with an attorney is a good idea.

All is not lost

You work hard to keep your company going, and dealing with unpaid debts distracts you from the real job of running your business. However, you have rights as a creditor, and if there is a chance of reclaiming what someone owes you, why wouldn't you take that chance?

Having the assistance of an attorney who works to protect the rights of creditors in California may provide you with the information and guidance you are seeking. An attorney will evaluate the situation and help you determine if the debt is worth pursuing. With many options to explore, you and your attorney can decide on the best course of action for protecting your business and your rights.

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  • Santa Clara County Bar Association | 1917
  • American Inns of Court
  • CWL | California Woman Lawyers
  • Bay Area Bankruptcy | Forun
  • The State Bar of California
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