The court system of the United States provides more than adequate protection for people or businesses who find themselves in financial distress. Fortunately, as a creditor you also have rights when it comes to claiming money owed to you. In even better news the process for actually reclaiming what’s owed to you is remarkably straightforward, and all thanks to sections 501 and 502 of the U.S. Bankruptcy Code.
There are a number of considerations to take into account first, and these are in relation to the type of debt owed to you. Firstly if it’s a secured debt then you generally will not have to pursue your debtor by filing a ‘Proof of Claim’. If, however, the debt is unsecured then it makes sense to file a ‘Proof of Claim’ at your earliest possible opportunity. You should file a claim of this type if there’s any doubt in your mind as so whether or not the debt owed to you is secured or unsecured.
Another important point to note is whether or not you can reclaim any money or assets even if you do file a ‘Proof of Claim’. If your client is filing for Chapter 7 then there’s a very good chance they’ll have most, if not all, of their debt discharged. It will be difficult for you to benefit from a Chapter 7 filing. However, a Chapter 13 filing by your debtor leaves you with an opportunity to recoup at least some of your losses.
A ‘Proof of Claim’ is not an automatic process, and this will be explained to you if you attend the first creditors meeting as set by the judge overseeing the bankruptcy filing in question. This meeting should take place within 4 – 6 weeks of your debtor filing for bankruptcy. Most creditors never attend these meetings, so being present can give you an advantage.
You will be provided with the contact details of the court-appointed bankruptcy trustee during the 341a/creditors meeting, and it’s important that you keep this information where you can find it. We’ll explain why shortly.
Your ‘Proof of Claim’ must be filed within 90-days of the first creditor meeting, which you should have attended. The court should have already informed you about this deadline when you first received notice that one of your debtors is filing for bankruptcy. Once you’ve submitted your claim you then need to wait. Bear in mind that in a bankruptcy filing the trustee is paid first, and then creditors are paid afterwards with the repayment schedule focusing on immediate debts such as wages, commissions and employee benefits.
There is the possibility that your claim might be delayed if the court disagrees with the amount of money you’re claiming for, any unusually high interest rates being charged, or a lack of documentation to support your claim in the first place.
If you feel an unusual amount of time has passed and you still haven’t received payment, then please contact the trustee assigned to the case. Their contact details would have been included in the original notification for the creditors meetings. They’re best suited to let you know the status of your distribution, if you’re going to receive anything at all.