Bankruptcies happen. They happen in booming economies as well as in recessionary ones, and they likely will massively occur in the frozen business environment caused by the COVID-19 pandemic. The suddenness of the pandemic’s onset is unprecedented. For many, consequently, dealing with those bankruptcies will be an unwanted and unanticipated new experience. Nevertheless, corporate and individual creditors of those prospective — or already-filed — debtors will want to do what they can, when they can, to protect their interests and minimize the damage to their own operations.
This article offers 10 simple tips to help achieve those protections. Your mileage may vary, as the saying goes, but it remains important to buckle your seat belt.
1. Review your contracts and credit terms.
When a customer enters a Chapter 11 bankruptcy, the automatic stay prevents creditors from commencing or continuing any efforts to collect a debt that relates to the period prior to the bankruptcy filing date. That means that a creditor cannot sue, cannot write demand letters, and cannot verbally demand payment of “pre-petition” accounts receivable. That does not, however, mean that one should do nothing.
First, a creditor would be well-advised to collect and preserve all documents relevant to their business relationship with the debtor. These will include contracts, delivery confirmations, bills of lading, credit agreements, and anything else that provides the factual and legal basis for claims against the debtor. Proofs of claim (the formal
documents establishing creditors’ rights to payment through the bankruptcy process) must provide adequate detail to prove one’s claim, and it is never too soon to assemble that support...