Ask the Lawyer

Bankruptcy Law

Posted

Q: I own a business and one of my customers filed for bankruptcy, is there anything I should do?

A: Yes, there is actually quite a lot you should do, and the explanation of everything would be quite extensive. One of the more important things includes making sure you receive notice of court-related filings, such as the deadline for filing proofs of claim. If you receive any notice regarding the bankruptcy in the mail, it is likely you will receive subsequent notices, but it is not guaranteed. The bankruptcy court’s files are open to the public, including through the court’s website, and you can, and perhaps should, monitor the court filings carefully. Of course, if enough money is at stake, or the debtor is seeking “relief” from the court that might hurt your interests, you should consult a qualified bankruptcy attorney.

If you need to oppose any relief that the customer/debtor may be seeking from the bankruptcy court, you will need an attorney unless you operate your business as a sole proprietorship (in other words, corporations, partnerships and limited liability companies must use an attorney to file papers with the court and if they want to appear and address the court). One exception is that a non-attorney representative of a company may file a proof of claim with the court. Do so carefully, however, as it is extremely important that the proof of claim form be filled out correctly and filed with proper documentation. Among other things, your rights to assert an offset of what you may owe the customer/debtor, to assert a security interest in the customer’s property or to assert a special priority for goods delivered within 20 days before the bankruptcy filing could be compromised by an inaccurate or incomplete proof of claim.

Other rights you may wish pursue or protect, such as reclaiming goods shipped or participating as a member of an official committee of unsecured creditors, will be addressed in future columns.

Thomas R. Slome is Chair of the firm's Bankruptcy practice and Co-Chair of the firm's Corporate Finance practice.  Mr. Slome represents a wide variety of creditors in all aspects of bankruptcy including corporate reorganization, bankruptcy related litigation, debtor-in-possession and exit financing, creditors’ rights, and out of court debt restructuring. Mr. Slome’s clients include banks, factors, equipment lessors, hedge and private equity funds, landlords, developers, brokers, hospitals, trustees, creditors’ committees and debtors.

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