You’ve Received A Bankruptcy Notice–What Should You Do?

02 Nov You’ve Received A Bankruptcy Notice–What Should You Do?

formsMost of our posts here at Bankruptcy Law Network are written from the point of view of someone filing bankruptcy–the debtor’s perspective. But what if your employer (or former employer) or a company you’ve done business with files bankruptcy, and you are on the receiving end of bankruptcy notices–you are considered a creditor in the case. What should you do then?

Most of the time when this happens, the bankruptcy in question is a Chapter 11 reorganization. A Chapter 11bankruptcy offers a business the opportunity to restructure debt and continue operating. Sometimes the Chapter 11 debtor is trying to restructure its pensions and other benefits offered to employees or former employees. Sometimes the Chapter 11 debtor is trying to deal with a mass tort, like a defective product, or mass worker’s compensation claims. Sometimes consumers may be creditors just because of timing. Let’s say you slipped and fell in the grocery store just before the chain files for bankruptcy. In all these situations, your rights can be affected by the bankruptcy filing. The one thing you shouldn’t do is nothing.

And, many times the bankruptcy notice you receive is from a jurisdiction far away from where you live. Especially if the company is large, and has a choice of jurisdictions, they are going to look to file in a jurisdiction where the resources they need (like lawyers, accountants, and other professionals) are available, and where they perceive they will be before a knowledgeable, if not sympathetic, judge. Another factor that may impact the company’s decision is the size and experience of the clerk’s office. A large bankruptcy case places a huge burden on the clerk’s office, and one that has the staffing to handle it, or has experience with cases of similar size, may be important. So getting answers to your questions about the case may not be as simple as calling a local attorney.

So what should you do when you receive the bankruptcy notice? Well, the first thing you need to consider is whether you actually have a claim in the bankruptcy case. Sometimes you may feel that you don’t, and that you have been incorrectly listed as a creditor. That happens, because lawyers tend to be cautious, and because the bankruptcy code defines “creditor” broadly, as anyone who could potentially make a claim. So, for example, say you worked for a company which has had worker’s comp claims made by people who worked with you, or had your same job. Even if you have never made a claim, and don’t anticipate doing so, when that company files bankruptcy they may list you as a creditor as a precaution. Similarly, lets say there’s a class action suit pending against your mortgage servicing company, and you are a member of the class. If the mortgage servicer files bankruptcy, you may be listed as a creditor even if you haven’t complained about their servicing. In such a case, the Internet can be your friend. Most large bankruptcy filings will generate a little press coverage, which may identify such problems as leading to the Chapter 11 filing. The company filing Chapter 11 will also frequently issue press releases, which may offer insight on such matters.

In Chapter 11 bankruptcy cases (but only in Chapter 11 cases) you may not have to file a claim, if the debtor has correctly listed your claim, and has not indicated that the claim is disputed. It can be challenging to determine whether that is the case, especially in a large case, and you may still need some assistance in reviewing those filings.

What if you do have a claim, and your claim is not scheduled, or is listed as disputed? What if you had a pending worker’s comp or personal injury suit pending against the Chapter 11 debtor? If you have a lawyer already handling such a matter, you will want to check with him first. Even though the Chapter 11 may impact how your case is heard, and the compensation available to you, your lawyer may be willing to continue to pursue the matter in the bankruptcy forum. If that is not the case, and your lawyer is not willing to pursue the claim now that bankruptcy has intervened, you may have to find someone who will. That can be a challenge if the case is pending in a far-off jurisdiction. Again, the internet can be your friend. You may be able to identify lawyers or law firms who are pursuing similar matters. Or a local lawyer may be able to make a referral. Another resource may be the claims register in the case, which is publicly available. It is almost certain to be a boring slog, but you may be able to find the names of lawyers who are handling matters for folks in a similar situation. Even if that lawyer can’t help you, he may be able to refer you to someone who can. And finally, look for experienced bankruptcy lawyers in the jurisdiction where the case is pending.

The one thing you shouldn’t do is wait. In many Chapter 11 cases, the court will set a deadline to file claims that is very early in the case, often before you have any meaningful information about how they intend to pay your claim. Once that deadline is past, no matter how much merit your claim has, you may be out of luck. The bankruptcy may bar any recovery at all. (Yes, no matter where you originally filed your claim, no matter how close you were to proving your case, no matter how much you deserve, the bankruptcy process can intervene, and if you fail to act, bar your recovery. It is beyond the scope of this article to go into detail about the mechanics and justification behind those provisions, but trust me, it can happen.) Usually when you get the bankruptcy notice you will get a claim form to fill out. It is a relatively simple form, and it will include instructions concerning where to send it once you have filled it out. At the very least, fill it out yourself and send it in (keeping a copy for your records) and then find a lawyer to check it over for you and correct anything that’s not quite right.

But don’t wait too long to look for a lawyer to help you. If your claim is not quite right, or if, as is often the case, the amount that you are owed is going to have to be determined by the court, you may one day get a notice that says you have to be ready to proceed with that in less than 30 days. It is far from ideal to be looking for a lawyer at that stage. It can be difficult to find the help you need, and the results can still be frustrating, but if you have a valid claim and you are persistent, you may still recover at least a portion of your claim. Although some bankruptcy cases, especially Chapter 7 cases, may have disappointing returns to creditors, Chapter 11 cases may not be a lost cause, but only the vigilant get any recovery.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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