Act Fast on Bankruptcy
Everyone probably remembers that in 2005 bankruptcy laws were changed to make it more difficult to file bankruptcy and wipe out consumer debt. With a rising economy and increasing home equity, it was believed it was too easy to rack up debt and then get rid of it in a bankruptcy proceeding, and that would-be debtors should resort to home equity or other means to deal with their debts.
We all know that the economy isn't what it used to be and billions (if not trillions) of dollars of home equity have vanished over the last year or so. With this vanishing real property equity, people can no longer tap into their residences to pay debts. Even individuals with performing but unused home equity lines have found those lines terminated or reduced. Banks have dramatically tightened credit standards. Thus, people and businesses can no longer borrow their way out of trouble.
Compounded by rising gas and commodity prices, the "perfect storm" of factors has converged to squeeze individuals and businesses throughout the country. Many are now being forced to turn to relief under the bankruptcy code.
When a bankruptcy case is filed and the trustee or debtor has determined there are assets with which to pay creditors, a notice is sent out to all creditors listed by the debtor. If you receive a notice that someone who owes you money has filed bankruptcy, your initial inclination may be to write-off the chance of collection. But do not be so quick to give up. If you are diligent, you may get paid some or all of the debt owed to you.
When you receive the notice, usually called a "Notice of Commencement of Case," read it carefully. You received it because the debtor believes it owes you money. The notice will tell you what type of bankruptcy was filed and when the meeting of creditors will take place. You may want to appear at that meeting to ask the debtor questions about the debt and the debtor's plans to repay you.
The notice will usually include a proof of claim form. Complete that form, or have your attorney complete it for you, and file it with the court. If your claim is properly filed and not disputed by the debtor, you should get a distribution from the bankruptcy. I have seen many cases where creditors were paid 100 percent on the dollar. Keep in mind that the proof of claim deadline is critical. The courts are very unforgiving. If you fail to file timely, your debt might be wiped out.
The laws also provide for exceptions to wiping out debts. For example, if the debt was incurred through fraud or some other intentional misconduct, the debt may not be wiped out and you may be able to collect the debt notwithstanding the bankruptcy case. Also, if you have a lien, the debt may not be wiped out. But you still must move quickly in the bankruptcy court to assert your rights. In short, there may be many opportunities for you to get paid even if the party that owes the money files bankruptcy. I have seen cases where money has to be returned to the bankrupt debtor because creditors did not file claims or otherwise assert their rights. If you get a notice, don't delay. Call a qualified attorney with expertise in bankruptcy law who can offer advice to maximize your ability to recover. Otherwise, your rights could be lost forever.
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