Businesses sometimes go into debt. Growing companies can easily overextend themselves. Companies that were previously successful may fail to adapt to changing economic circumstances, for example.
Other companies owed money by businesses expect them to make good on their obligations. However, those expectations may come crashing down when a company announces a bankruptcy filing.
Companies may pursue Chapter 7 bankruptcy prior to dissolution. Business owners might also use bankruptcy as part of the restructuring process. Contrary to what many creditors assume, it may actually be possible to continue collecting on debts even after an organization files for bankruptcy.
Adversary proceedings could provide relief
Typically, when a person or business files for bankruptcy, the courts issue an automatic stay. Creditors have to cease all collection activity. They may have to dismiss pending lawsuits and stop sending collection notices.
In some cases, it is possible to ask the courts to lift the automatic stay to allow collection efforts to resume. An adversary proceeding is a lawsuit filed as part of the broader bankruptcy process.
Creditors are among those with the right to petition the courts for a hearing in response to a bankruptcy filing. The courts can lift the automatic stay to allow for the continuation of collection efforts. Other times, it may be possible to prevent a debtor from discharging a specific debt. A debtor business filing for bankruptcy does not prevent creditor organizations from pursuing the repayment that they deserve.
Frustrated creditors may need help pursuing adversary proceedings and collecting on a debt in the midst of a business bankruptcy. Having experienced legal guidance in reviewing the financial obligation and other details can help those who are owed money by a business that has filed for bankruptcy evaluate their options.