Bankruptcy Court

I’ve written recently about judgement liens and on how to collect on civil judgements. But what happens if the person that owes you money declares bankruptcy?

I know quite a lot about this because a large part of my legal practice is based around consumer and small business bankruptcy. One of the top reasons an individual declares bankruptcy is because of aggressive collection activity related to a civil judgement. As a judgement creditor, you have to consider this reality when pursuing an individual or business for money owed. If you’re too aggressive, your debt might end up in bankruptcy. If you’re not aggressive enough, you might miss out on an opportunity to collect the money that you are owed. It really is a fine line.

If a consumer or business ends up declaring bankruptcy and you have collection activity pending against that person or business, you must do one thing immediately: stop everything! Bankruptcy law strongly protects a debtor that has declared bankruptcy. Flouting these protections can result in steep penalties from the bankruptcy court.

With that being said, the bankruptcy code was actually written from the standpoint of protecting creditor rights. The bankruptcy code is intended to provide for the orderly liquidation or reorganization of a debtor’s financial affairs, and the court is empowered to ensure that all creditors are treated equally.

Once you receive notice of your debtor’s bankruptcy case, you should carefully consider your next move. Next steps will depend on whether the debtor has filed under Chapter 7, 11 or 13 of the bankruptcy code. Another consideration is whether a Chapter 7 bankruptcy has been declared an “asset case” by the court.

If your judgement is sizable and you end up in bankruptcy court, I strongly recommend that you retain the services of an attorney. An experienced bankruptcy attorney can help you navigate the complex world of bankruptcy and can advise you whether it makes financial sense to intervene in a bankruptcy case (often times the answer is no, but there are many exceptions).

Need help with collecting a judgement / legal debt in the Sacramento area? Please call my office at (916) 333-2222.