When individuals or businesses file bankruptcy, something invisible yet incredibly resilient occurs. It serves to deflect the attempts by creditors and bill collectors to collect money owed by a debtor for services rendered or goods received.
An important aspect of bankruptcy law is known as the ‘automatic stay.’ The ‘stay’ basically acts like Teflon against attempts to collect debts allegedly owed by a debtor. In the standard bankruptcy, the automatic stay remains in effect during the entire pendency of a bankruptcy. However, exceptions to that norm were enacted when Congress overhauled the U.S. Bankruptcy Code in 2005.
Say a debtor (business or individual) filed for bankruptcy within the last year and the case was dismissed prior to discharge, whether that occurred because the debtor requested it or the court ordered it. Then, within a year, that debtor files bankruptcy again. In that scenario, the automatic stay remains in effect for only 30 days, not throughout the pendency of the bankruptcy. There are additional rules to address situations when a debtor has filed bankruptcy twice during a short time period with those cases being dismissed for whatever reason, and then file once again in a short span of time. Congress wanted to ensure that debtors are not abusing the privilege of the automatic stay, so it decided there are situations when a bankruptcy filing does not benefit from an automatic stay, at all.
It is important to seek collection of accounts receivable before a debtor files for bankruptcy since that means your company might be precluded from recovering any money it is owed.
The Jayaram Law routinely and successfully assists its clients in their business-to-business collection needs. We take pride in obtaining payment on accounts receivable without fracturing critical business relationships or engaging in time-consuming and costly litigation efforts. If you need business debt collection services conducted in a professional manner, contact our B2B debt collection law firm.