It’s only a matter of time before a client who has filed for bankruptcy ends up on your accounts receivable list. Broussard Poché, LLP can help you get a solid understanding of what happens next; it is still possible to recoup your goods or at least part of the money your company is owed. If you’re a secured creditor, the average is 77 cents on the dollar. Unsecured creditors often collect only two cents on the dollar. How much you can ultimately collect may impact your decision on whether or not to take action.
Be prepared for “hurry up and wait” scenario, you must act quickly but be patient when it comes to actually getting paid. The debtor may get years to repay, but you should probably take action right away. As soon as you learn a customer has filed for Chapter 11, examine what your company is owed.
If the sale was made within 20 days of the Chapter 11 filing, you may be able to file an administrative claim. This claim moves you up in rank when payment is made. Once this is done, you will need to file a motion with the court to get the debt recognized and eventually paid.
If the goods were sold within 45 days of the Chapter 11 filing, find out if they have been shipped and/or received. If the shipment has been received, the Uniform Commercial Code gives you the right to file a reclamation claim to take back the goods. You must send a letter of reclamation; include a detailed description of the goods. After the letter, you’ll need to go to bankruptcy court to get an Order of Reclamation. It is advised that you seek legal counsel for this matter.
Here are a few other things to keep in mind:
Are you a secured creditor? If you are, your company stands a better chance of collecting. Even so, the debtor may have as long as six years to come up with the money.
If it was property that was sold to a now-bankrupt customer and the property is not required for the customer to reorganize, secured creditors might be able to get the property back. The automatic stay applied with Chapter 11 could be lifted by a court order.
If your company received a substantial payment from the customer within 90 days of the initiation of bankruptcy, there’s a chance the payment may have to be returned.
Broussard Poché, LLP recommends that companies that deal in substantial receivables have employees regularly check for bankruptcy filings. One day of delayed action could reduce your ability to collect. If you do come across a Chapter 11 filing, seek out expert help. It’s a delicate matter that you should not leave to chance.