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We have been discussing preferential payments, defenses and avoidance tactics. But what businesses care about most is getting paid for goods and services provided. This entry will discuss how to collect from a customer who has declared bankruptcy.

After I send back the preferential payment, how do I get paid for the original goods/services?

To obtain any kind of recovery on a debt from a debtor who has filed for bankruptcy protection, you must file a document called a “Proof of Claim,” which summarizes the amount of debt and its priority. Often, your debt will be listed in the bankruptcy filing, and you will be sent a Proof of Claim by the Bankruptcy Court. You don’t necessarily need a lawyer to fill out the Proof of Claim form, but you probably should consult an attorney if you receive a preference demand letter. Attach to the Proof of Claim a copy of the invoice or contract that forms the basis of your claim, or a summary of the elements that make up the claim. The Proof of Claim is then filed with the Court, or sent to a claims agent if the case is a big, publicly traded company like Circuit City or LandAmerica.

After I file my Proof of Claim, when will I get paid, and how much will I get paid?

When you get paid, and how much you get paid, depends on several factors, including which chapter the debtor has filed (7, 11 or 13), and how much there is available to pay creditors. In a chapter 7, for example, a trustee sells all of the assets of the bankrupt company, and then distributes what is left after costs of liquidation to the creditors. If there are a lot of things to be sold by the trustee, it will take a long time before funds are distributed to creditors. In a chapter 13, distributions to creditors generally happen more quickly. In large, Chapter 11 cases, the Chapter 11 Plan must first be confirmed &endash; a process that can take many months.

Tags: bankruptcy, Chapter 11, chapter 13, chapter 7, creditor, creditors, debtor, debtors, distribution, Plan, Plan of Reorganization, preferential payments, priority, proof of claim, proof of claim form, trustee

This entry was posted on Friday, May 29th, 2009 at 11:28 am and is filed under Bankruptcy law, business law, small business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.