Collection Litigation and the Bankrupt Debtor

We do a lot of collection litigation and we’re good at it. (Hey, if we were humble, we would not be lawyers.) This past week, however, has driven home the frustration of bankruptcy in the collection process.

We are always up front with our clients when they bring us a collection matter: we cannot control whether a debtor goes bankrupt or not and if they do, our client then goes into the rules of distribution of assets according to the Bankruptcy Act, not according to the enforcement of a Judgment.

Some debtors will go bankrupt when they receive a demand letter: generally those debtors are already so in over their heads financially, the demand is the final nudge they need to see a Trustee in Bankruptcy.

Other debtors are more frustrating, such as one this past week who literally went Bankrupt on the eve of Trial. I hate that for our client, who incurred legal fees getting ready for a Trial that will never take place. I hate that for the waste of Court resources and of course, for the case called after us, who likely thought they had longer to prepare.

Another debtor this week declared bankruptcy about 9 months after we obtained Judgment against him. This appears to have more to do with his not paying taxes than avoiding paying our client, but it is still frustrating for the client.

Ultimately, the best way to avoid situations like the ones described above is to have a good credit application that allows for periodic credit checks and of course, to do those checks. Another way to avoid the situation is to move as soon as there is a lack of payment: a debtor will try to deal with an individual creditor, however, if you’re “just another one” you’re not likely to get paid quickly, if at all.

If you’re running into a collection problem, give us a shout. We’re here to help!

Inga B. Andriessen JD