The Company That Owes Me Money Is In Chapter 11–What Now?

22 Apr The Company That Owes Me Money Is In Chapter 11–What Now?

When a local grocery store chain filed a Chapter 11, I began fielding calls from people who had received notice of the bankruptcy filing from the court, along with a form to use to file a claim with the court.  It’s a confusing and unsettling thing to get in your mailbox.  So what do you do when it happens to you?

Part of that answer depends on why you got the notice.  If you are an employee of the company, you may have gotten the notice because your pension or other benefits could be modified in the course of a Chapter 11.  In some cases it may be because the company missed or delayed a payroll.  \

If you got the notice because you sold the company goods or services (including many independent contractors) you are what bankruptcy lawyers call “trade creditors.”  Or, you might have received the notice because you were injured in an accident and have a claim against the company (or its insurers) for your injuries.

In a Chapter 11 case the debtor lists all those who have claims against it, and if the amount is known, states that amount.  If you have a claim that is correctly listed in the bankruptcy schedules, you may not need to file a claim in order to be paid.  You just have to wait for the court to approve a repayment plan.  But, if your claim is not listed correctly, or if the amount of the claim is undetermined (such as a change in medical insurance coverage, or a personal injury claim) you may waive the right to be paid if you don’t file a claim.  It can be very important, therefore, to take care of that.

Although the claim form used by the Bankruptcy Courts is supposed to be easy to fill out, like many things lawyers do for layman, it isn’t as easy as you’d think.  If you need to file a claim, and you don’t do it properly, you might think that someone would tell you about it, but they may not, or they may not object to it for months or years.  Often an objection comes in a multi-page document objecting to the claims of dozens, even hundreds, of others, making it very difficult to parse through.   Often a valid claim that has been filed incorrectly is thrown out entirely, so a bad situation is made worse.

The only sure way to know what you need to do to protect your interests is to consult a lawyer.  You may feel, quite rightly, that it is foolish to waste more money paying a lawyer to collect a debt from a company that is already bankrupt, and that is sometimes a valid point.  But, the other side of that equation is that you may lose out if you don’t act quickly.

You may be able to join together with other claimants in similar situations and pitch in to hire an attorney, or at least consult one.  Your union rep may have help or a referral to a lawyer for you.  If you are a member of a pre-paid legal services organization, it is the perfect time to take advantage of that service.  And if you already have a lawyer, like someone handling your personal injury claim, make sure you consult with him about the affect of the bankruptcy on your claim.

Some Chapter 11s result in total liquidation, but many are filed to address a specific type of claim, and many companies are able to reorganize and continue to operate and pay their obligations.  It might not hurt to cross your fingers and hope for the best.

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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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