What happens when a customer or client files for bankruptcy?

It is important to submit proof of claim whenever you get notices that your client/client has filed for bankruptcy.
Bankruptcy Filing
It’s not surprising that many of us have received information that clients or customers have filed for bankruptcy. This is despite the financial turmoil and uncertainty we’ve experienced over the past year. There are very strict rules regarding what you can and cannot do when a client, customer or business owes money to you, read more at Bankruptcy Information HQ. Although the rules can be very strict, there are common misconceptions that it is impossible to collect debts once a client has filed for bankruptcy. A bankruptcy court filing to collect unsecured debt can be completed by both individuals and businesses, and it does not require a lawyer.
The Chapters 7, 11 or 13 are the most popular types of bankruptcy. A person or business filing for bankruptcy is called a “debtor” under the Bankruptcy Code. Chapter 7 refers to a liquidation. After this, the bankruptcy court will discharge most of the unsecured creditors. Chapters 13 or 11 are debt restructurings in which the bankruptcy court approves plans for debtors that will allow them to pay off some of their debts and release others once the plan is complete.
Chapter 7 cases typically discharge Chapter 7 debts unpaid, or in pennies the dollar. Chapter 13 and 11 bankruptcy creditors must make payments for many more years so funds can be distributed to secured or unsecured creditors.
Bankruptcy Declarations
An automatic stay applies when a person, business or individual declares bankruptcy. Creditors must cease all attempts to collect debts directly from the debtor. To attempt to collect the debt, it is forbidden to send invoices or call customers, email or communicate with them in any other way. While you can communicate with clients and clients about other matters, and may be able to collect debts that they owe you after bankruptcy filings are filed, you cannot directly collect from the client. Before filing for bankruptcy, any debt. Violations can lead to severe penalties (up to $ 10,000) and even punitive damage. The bankruptcy court takes the automatic stay seriously and is not patient with creditors who violate it.
For customers and customers to be able to collect their debts, the bankruptcy court must receive proof of claim from creditors. The proof of claim is required to enable creditors to receive money from the bankruptcy estate. Chapter 7 cases that are “asset less”, or have no assets, are known as bankruptcy cases. This means that no unsecured creditor will be able to receive money to repay and there is no way to distribute the assets. These are the outstanding debts. Chapter 7 often has assets to distribute. Although it is unlikely that your creditors will pay you the full amount due to the debt, they can only collect the bankruptcy assets if the proof of claim is filed. If you fail to submit proof of claim, your client or client will not be released from bankruptcy.
Chapters 13 und 11
Chapters 13 or 11 will make it more likely that you collect money from your customer or client on any debts they owe you. Because the debtor has a payment plan that runs for many years, this means that the debtor is contributing to the payment plan. It is unlikely that you will be paid the entire amount of the debt in these chapters. However, it is possible to receive some payments. The procedure for submitting proof of debt in these chapters is identical to that used in Chapter 7 cases. Creditors are required to provide proof of claim through the bankruptcy court website.
A creditor doesn’t need a lawyer for proof of claim. It is very simple to submit the proof. The link to the bankruptcy court’s website provides a link that allows you to submit an online form. The process is quick and easy. Instructions and forms are also available at bankruptcyhq.com.
It is important to submit proof of claim whenever you receive notices that your client/client has filed for bankruptcy.