Most people go through life with little to no interaction with the bankruptcy court system. Those that do are usually voluntary players, like individual debtors who choose to file a bankruptcy case or lenders who know that losses are part of the business. However, sometimes a small business or an individual is pulled into someone else’s bankruptcy without notice and even against their wishes. In this situation, what can they do to protect their interests?

Why am I getting this notice?


Every debtor is required to list every person and business which may have a claim against them in their bankruptcy schedules. This includes traditional debts like car loans, but also sweeps up potential creditors like plaintiffs in personal injury actions and even relatives with informal repayment arrangements, like verbal agreements. Someone may receive a notice because they paid a deposit for a future service for a business that is no longer operating. Debtors have to pay a filing fee to add new creditors and err on the side of disclosing more potential creditors.

Stop, look, and listen

The most important thing for a creditor to do when they receive the notice that a bankruptcy has been filed by a party which may owe them money is to cease all collections activity immediately. This is due to something called the “automatic stay” which goes into effect immediately when a bankruptcy case is filed, with limited circumstances. This severely restricts actions which may be taken against debtors, and includes things like evictions and garnishments. Taking action against a debtor in violation of the automatic stay can have severe penalties unless you receive permission from the bankruptcy judge first.

What not to do

The most important question to most creditors is, “When am I getting paid?” Payments to creditors depend on many circumstances that are outside the control of the court and attorneys in any given case. Many cases do not result in any payments to creditors at all. Calling the court or the debtor’s attorney requesting a payment schedule will usually not provide a creditor with meaningful information. The same can be said about asking for guidance or help – neither the court nor the debtor’s attorney can ethically provide a creditor with advice specific to a given situation.

Deadlines matter

In many cases, if payments to creditors are anticipated, a notice will be mailed indicating that creditors should file a claim. It is important to abide by any deadlines in this notice, as late claims may not receive payment even if the underlying debt is valid. The same goes for objecting to chapter 11 or 13 plans if a creditor does not believe its treatment is appropriate under bankruptcy law. If a creditor has been treated so egregiously that the debt owed to it should not be allowed to be discharged, like for drunk driving injuries, the creditor has a short time in which to ask the court to remove the debt from the pool of creditors who will not be able to recover payments in the future. None of these deadlines are flexible, but they may be confusing. Most creditors’ attorneys need time to prepare filings, so creditors that wait until the deadline is close to expiration may not be able to find skilled representation if the task is harder than expected.

How do I evict a bankrupt tenant? How do I get my stuff back?

Taking any kind of legal action against a debtor in an active bankruptcy is fraught with peril and opportunities to violate the automatic stay. Evicting a debtor who is not paying rent or recovering property from a debtor are two of the most common automatic stay violations. These actions can almost never be taken without seeking and obtaining permission from the bankruptcy judge presiding over the debtor’s case after following strict and sometimes confusing procedural requirements. It is certainly possible to recover property or to evict a bankrupt tenant, but getting the court order allowing this kind of action is challenging and complex. Skilled legal representation can navigate this maze efficiently, and can secure the appropriate legal relief with as little disruption as possible.

This article is for informational purposes only and does not constitute legal advice.