What to do When Your Client Files for Bankruptcy

NJ collections attorney

From the perspective of a company owner doing business with a client (or company) who files for bankruptcy: how can you go about getting (even some of) the money you’re owed?

The second someone files for bankruptcy of any type, the Automatic Stay slams down like a sledgehammer – coming between the bankruptcy filer and anyone they owe money to. The Automatic Stay protects debtors during the bankruptcy process by making it illegal for any creditor to make contact asking for money.

Why can’t I contact my client?

After all, you and your client likely signed a working contract wherein you agreed to provide services and they agreed to pay you X amount of dollars for said services. Even though you continued to provide your end of the deal, your client filed for bankruptcy and now you aren’t even allowed to contact them. This can be very frustrating for a business owner who is owed payment(s) – money that may very well be making or breaking the creditor’s own business.

The reason you can’t contact a bankruptcy client is because the Automatic Stay is a protective measure put into place by the bankruptcy court to protect struggling debtors. It gives them enough time and breathing room to gather their financial information and meet with their bankruptcy attorney and/or a potential NJ credit counselor to come up with a plan that makes sense for getting them back on their feet again.

Chapter 11 and 13 bankruptcies are filed with the intention of reorganizing monies owed into a more feasible and achievable payment plan. As soon as these bankruptcy cases are complete – you will once again begin receiving payment from your client. According to their debt reorganization plan, you may not receive the full amount due, but you will get paid.

That’s the good news.

The bad news is that the vast majority of bankruptcies filed today are chapter 7, which entails debtors liquidating assets and discharging many of their debts altogether. If your client files for chapter 7 bankruptcy, you may have to write off their past due amount as a loss. In any case, remember NOT to contact them at all until you receive notice that their bankruptcy case is no longer active in the NJ Courts system.


To contact a debtor while they are actively going through the bankruptcy process (if an Automatic Stay is in place) means that you risk being sued. You will have broken the bankruptcy code if you even attempt to contact a bankruptcy client.


 

What You Can Do:

  • File a Proof of Claim – Downloadable from the USCourts online and easy to fill out.
  • Attend the Meeting of the Creditors; also known as the 341 Hearing – At this meeting, you will be able to question your client. You’ll also be permitted to object to the repayment or reorganization plan if you deem it unfair.
  • Thoroughly review any plan that is formulated by the debtor and their trustee. If less than half of their creditors do not consent with the plan, it won’t be approved by the bankruptcy court.
  • Make sure you are listed on the Creditor Matrix.
  • Wait and see. Truthfully, most of your time will be spent waiting to find out the outcome of your client’s case. If the case is dismissed, or “thrown out,” you will once again be allowed to attempt collection. If an agreement or repayment plan was formulated, you will receive a notice about how much you can collect. Be sure that all of your contact information is correct with the bankruptcy court and your client’s bankruptcy attorney to ensure you will receive any and all payments.

 

How to Dispute a Debt and Win!

We’ve talked a lot on our blog about how to handle your unpaid debts so that your credit score doesn’t tank, because a low credit score makes it much harder for you to borrow money, buy a house, and purchase a vehicle. Even potential employers today have the ability to find out how you handle money before deciding whether or not to hire you. For the aforementioned reasons, keeping a decent credit score is something that rightfully demands your attention.

Keeping tabs on your ever-shifting credit score and the details contained within your credit report(s) is the easiest way to ensure that you don’t have any long-lost debts doing serious damage without your knowledge. If and when you discover an unpaid debt that belongs to you, it’s important to pay the debt ASAP to avoid losing valuable credit score points. Working with your credit repair attorney in NJ, you can negotiate a debt pay-off schedule that works for you. Remember to check back in with the credit reporting bureaus as soon as you’ve paid off said debt to make sure it has been removed from your credit report.

What happens if you receive a notice from a collection agency for a debt that you have no recollection of owing? While your first instinct may be to toss it in the trash with the rest of the “junk mail,” slow down for a minute. There are two very good reasons why you should NOT ignore any letter from a debt collector.

  1. Everyone makes mistakes. It’s possible that you do owe an original creditor money. Bills are be misplaced, mis-sent, and lost every day. The original creditor may have also made a billing error when they originally charged you. The bottom line is that it is possible that you owe money that you forgot about or didn’t know about.
  2. Debt collectors can continue to attempt to collect on a debt, even if it was never your debt to begin with, unless you respond to them, in writing, within 30 days. Therefore, even if a collection agency is completely falsifying information in the hopes that you will simply send them some money, do not ignore it.

If you are being held responsible for a debt that you don’t recognize or remember, you can dispute the debt by sending the collection agent a letter via Certified Mail, with return receipt requested. In your letter, state that you are writing to dispute the alleged debt, and that all collection attempts should cease unless they can provide you with all of the following:

  • The full amount of the alleged debt
  • The name and address of the original creditor
  • Proof that you are responsible for the alleged debt
  • Documentation showing that the collection agency is licensed to collect debts in New Jersey

If the person attempting to collect money is doing so fraudulently, you should never hear from them again once they receive this letter from you. On the other hand, if there is a legitimate debt that you’re responsible for, you will receive the information you requested. Either way it is advisable to contact a credit repair attorney and/or a consumer fraud attorney in order to get your desired results and to keep your good credit score safe.

Image: “Credit Dispute” by Cafe Credit – licensed under CC 2.0

Know Your Rights: When Debt Collectors Go too Far

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If you’re being hounded by an unstoppable “debt collector” who’ll seemingly go to great lengths in order to get your money, you need to be aware of your rights as an American consumer.

It’s been a hot topic in the news recently in many states across the nation. Too many people are being tricked, bullied and threatened by these so-called debt collectors pretending to be law enforcement, detectives or investigators working on the case of money that you either owe, stole, or fraudulently borrowed.

As a rule, debt collectors are hired by a third party to whom you legally owe money. Unfortunately, many debt collection firms today are practicing unscrupulous methods in order to get you to pay up, even when you don’t legally owe a cent. And a lot of them are stepping way over the line of legality.

Frequently, these types of “debt collectors” are actually scam artists attempting to trick people out of their money. There are several different schemes running at the moment nationwide that you should be aware of in order to protect yourself.

Sometimes, the debt collectors in question call borrowers and accuse them of committing a crime, such as check fraud or theft by deception. They will demand immediate payment, and if you do not comply, they will threaten with a warrant for your arrest. You should in no way respond to these threats, and if the harassment becomes chronic, you may need to contact an attorney to enforce your rights.

Thankfully, in 2015, new regulations are set to take effect in order to prevent these characters from performing such deceptive and aggressive actions against borrowers. The tough new regulations will help protect consumers (who are already struggling financially) from being taken advantage of and losing money that they really can’t afford to give up.

So far in 2014, there have been over 20,000 complaints about harassing debt collectors just in the state of New York alone.

As a borrower/consumer, be aware that debt collectors/scam artists will say almost anything in order to get your money, even if the statute of limitations on your debt has been reached. They may even demand that you pay money on a debt that you have already paid in full, citing interest that you never paid or other lies to encourage you to open your checkbook. Lastly, they may invent a debt that you supposedly owe, which never even existed.

Unfortunately, the debt collection industry has been unregulated for far too long and the unscrupulous actions of members of the industry have finally gone too far. Lawmakers are taking notice and taking action.

The new rules will help those thousands of people in New York, and eventually across the country, who have been working hard to clear their debts in order to raise their credit scores and get back on track financially.

The new regulations imposed upon the debt collection industry will require debt collectors to provide consumers with specific information about the debt being collected. For example, they will be required to disclose whether or not a debt has reached its expiration date. Debt collectors will also have to give significant credence to any dispute given by the consumer in question regarding the debt owed.

Additionally, debt collectors will henceforth be required to provide debtors with a detailed written agreement confirming any debt settlement agreement that has been reached. Consumers will also be given a copy of this written agreement, and they will also receive written confirmation once the debt has been paid in full.

Image Credit: Patrick Hoesly