For a creditor, bankruptcy is another step along the way to the ultimate resolution of the debt. In bankruptcy, the debtor is either seeking a discharge so that the debt owed will no longer be enforceable or a reorganization to confirm a plan that can be approved by the court that will repay some, or all, of the debt or catch up on arrearages.
The Bankruptcy Code poses a risk to the unwary Creditor. It prohibits Creditors from taking actions that the Creditor would normally take such as calling the Debtor, sending Demand Letters, attempting to repossess collateral, using an ignition interrupter or GPS on a financed motor vehicle or suing the Debtor. All these actions and others are prohibited by the Automatic Stay that arises upon commencement of a Bankruptcy case.
In the event that your customer commences a Bankruptcy proceeding, the best course of action is to contact a lawyer immediately in order to develop a strategy for the best way to obtain the best position possible in the Bankruptcy, as well as to avoid any pitfalls that might arise. If you are a Creditor with collateral, you are entitled to receive Adequate Protection so the value of your collateral does not diminish by the Debtor’s continued use during a proceeding. If Adequate Protection is not offered, a Creditor can request the Court to lift the Automatic Stay to allow the Creditor to recover its collateral.
It is essential that the progress of Debtor's case be vigilantly monitored in order to assure the best outcome.