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Friends of Bankruptcy Bill (FOBB) are experienced consumer bankruptcy lawyers willing to share their thoughts and answer bankruptcy questions on this site. Feel free to get in touch if interested in contributing as a FOBB.

Bill McLeod is a Boston-based bankruptcy attorney, representing creditors and debtors with over 15 years of experience. You can learn more about this and read more of his blog posts at www.mcleodlawoffices.com. Follow him on Twitter.  Find him on Facebook.

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When you discover that you are a creditor in a bankruptcy case…

Recently, I was in the clerk’s office in Boston and overheard two people ask the clerk which forms needed to be filed in a bankruptcy case.  But this person was not a debtor – they were a creditor.  Their landlord had filed bankruptcy.  The former tenant was looking for their security deposit back, and was going to sue the debtor in small claims.  I couldn’t help myself – and I butted in.

“You need relief from the automatic stay.”

“The stay applies even to me?” one asked.

“It applies to everyone.”

After that short exchange, I thought I would put together a short checklist of things to do when your landlord – or someone else you know who also happens to owe you money – files a petition seeking bankruptcy protection.

• Don’t panic.

People have the right to seek bankruptcy protection.  Simply because they do does not mean that you’re not going to get paid.  On the other hand, simply because I am encouraging you not to panic should not be read to mean that you are going to get paid.  But still, don’t panic.  In my experience, panic can lead to actions that can get you into more trouble…such as violating the automatic stay…so with that said…

• Don’t violate the automatic stay.

The automatic stay applies to all creditors.  It does not matter if you’re a big bank or a friend or neighbor of the debtor, the same rules apply.  There are very limited exceptions to the automatic stay and you should not assume that you fall under one of those exceptions.

If you know that someone has filed bankruptcy, do not call the debtor and ask about payment.  Do not send them a letter.  Do not sue them – even in small claims court.   Don’t assume that just because you heard about it from a third party and did not receive any written notice does not mean that the automatic stay does not apply to you.  Stay violations can be costly.  Willful violations of the stay can be very costly.

Call an experienced bankruptcy attorney to determine what your next course of action should be (such as filing a motion for relief from the automatic stay).  And remember, the court clerk’s office cannot give you legal advice.

• Consult with an attorney.

At a very minimum, talk to a bankruptcy attorney.  Be prepared to explain the basis of your claim against the debtor and why you are entitled to payment. Have the docket number or the debtor’s name handy so the attorney can review the filings on-line.   Let the attorney determine whether you should seek relief from the stay, or whether you may need to file an Adversary Proceeding – seeking a court determination that the discharge injunction will not apply to your claim.   Both have costs associated with them (at a minimum, a filing fee).  There are a number of discharge exceptions in the bankruptcy code.  Some require the creditor to file an Adversary Proceeding.  Check with an attorney as soon as possible to explore your options.  But again, you should…

• Consult with your own attorney.

Many times a creditor has called me directly and said “what do I do now?”  If I am not representing the debtor, I can review the facts and answer the question.  But if I am representing the debtor – or perhaps even another creditor in that case – my response needs to be very limited.  Debtor’s attorney cannot tell you what to do – or what not to do.  Meet with your own bankruptcy attorney and get an opinion you can rely on.

• Be mindful of deadlines.

When a petition for bankruptcy is filed, deadlines are established.  There are deadlines to file claims.  Deadlines to file Adversary Proceedings.  Deadlines to object to a debtor’s claimed exemptions. Deadlines to object to a debtor’s plan.   Miss those deadlines and you may lose your rights.

• If you want to challenge the bankruptcy filing, or challenge the discharge, consult with an attorney and proceed wisely.

Just because people seek bankruptcy protection does not mean they deserve it.  However, just because you – as a creditor – may think the filing unfair does not mean that the debtor’s case should be dismissed or the discharge be denied.  If you’re thinking of challenging a debtor’s bankruptcy case, meet with an experienced bankruptcy litigator – or two (as I tell my own clients, it never hurts to get a second opinion).

A few years ago, I represented a chapter 13 debtor in a contentious case where an individual creditor sought to challenge the filing.  The creditor chose not to have an attorney.  Despite my warning the creditor that there was no legitimate basis to challenge the debtor’s bankruptcy filing, the creditor persisted.  The end result: the debtor’s plan was confirmed (after a long process and a trial) and the creditor’s fight against confirmation of the debtor’s plan proved unsuccessful.  Almost all of the funds paid into the chapter 13 plan went to the debtor’s attorney’s fees.  The creditor ended up with nothing.

• Bookmark this.

If your landlord, friend, relative, ex, former roommate or former client or customer files bankruptcy, take a deep breath, and then re-read these 6 tips.  The bankruptcy filing might mean that things aren’t going to get better in that you’re not going to get your money.  But following these tips may ensure that things will not get any worse.