For the average consumer, bankruptcy is a great tool, but for the business owner and debt collector, it can be a source of much frustration. Every time a person files for bankruptcy, the smaller creditors, such as material vendors, shop owners, service providers, and even healthcare providers, get the short end of the stick. No matter which type of bankruptcy a person files for, the bankruptcy trustee will distribute funds in order of priority. Typically, smaller creditors are at the bottom of the totem pole, and most never see a penny of what is owed to them. This is in large part thanks to the automatic stay.

What is an Automatic Stay? 

An automatic stay is the foundation upon which all bankruptcy law rests. In-depth information regarding this can be found in 11 U.S.C.A. § 362. In short, however, the stay is an injunction tool that is used to stop any act of collection, enforcement, or perfection of a debt owed by the filer. It is effective as soon as the petition is filed with the bankruptcy court.

Once a stay is in place, all creditors must cease debt collection efforts, including any contact with the debtor via phone or email. Once the petition is filed, all of the debtor’s property and assets will be placed within a bankruptcy estate, which will then be handled by a trustee. The trustee will value the assets and then liquidate and distribute all non-exempt assets to creditors in order of priority, as mentioned above. If the debtor filed for Chapter 13 or Chapter 11, you must submit a proof of claim to the court outlining the debt owed to you to ensure that you are a part of the debtor’s payment plan. Bear in mind, however, that just because your proof of claim is accepted does not mean that you will receive all or any of what is owed to you.

Is There a Way Around an Automatic Stay? 

Any violations of an automatic stay are taken very seriously and can leave creditors liable for damages, including attorney fees, court costs, and punitive damages. For this reason, it is important that you take notice of bankruptcy filings seriously and that you stop your debt collection efforts immediately.

If you discover or hear of an active bankruptcy, you can file a motion of relief from the stay. While any creditor has the right to do this, it is highly unlikely that the bankruptcy court judges will approve the motion unless you are a secured creditor, and even then the chances of approval are slim.

The best chance you have at recovering anything that is owed to you is waiting until the proceedings have ended. Once the trustee has distributed the property, abandoned property that wasn’t worth much value, and the debtor has been discharged, you can recover secured property that once belonged to you. However, you cannot seek repayment from the debtor.

Work With a Knowledgeable Creditors’ Rights Attorney 

You may not be able to recover all that is owed to you once a debtor files for bankruptcy, but by working with a skilled creditors’ rights lawyer, you can maximize your recovery through a repayment plan or reorganization. Our lawyers will negotiate on your behalf to ensure that your debt takes the highest priority and that the trustee ensures that you receive as much repayment as possible. Contact Cloud Willis & Ellis today to get started.