As an unsecured creditor whose client has gone into bankruptcy, you may be unsure if you’ll be able to collect. If your client has gone into Chapter 11 bankruptcy, this is a good opportunity to be a part of the discussion and to work with them to get as much of your investment back as possible.
When debtors set up repayments in Chapter 11 bankruptcy, they first have to pay the costs of administration. Then, they will pay unsecured claims with high priority, based on what Congress has approved. Finally, all other unsecured creditors should be part of the repayment.
It’s a reality that unsecured debtors are last in line, and they do generally have the most to lose when a client goes into bankruptcy. Monitoring the debtor’s actions during the bankruptcy is in your benefit, so that you don’t miss an opportunity to collect.
What should you do when you receive notice of a Chapter 11 filing?
Right away, make sure you speak with your attorney about first-day motions and reading them over. Those motions could impact your ability to collect. Your attorney can file an objection if it’s appropriate, helping you protect your rights as an entity that is owed compensation.
You’ll be served with notice of the case after that. Then, you and your attorney should work to gather additional information about the case. Your attorney may file to receive copies of all filings in the case, so that you stay apprised on the actions taking place.
Remember, throughout this process, the debtor may have to make filings regarding their financial status. These may help you find out more about how much money they have, their assets and if they’re in a position to pay back your claim against them.
A bankruptcy claim can be a complex legal document, but it’s also important to try to seek the compensation that you rightfully deserve for lending to the debtor. Your attorney will talk to you about the different options you have if you want to collect and if it’s possible that you could lose out as an unsecured creditor.