The rules pertaining to collection efforts are substantially different depending on the nature of the debt at issue. Collection procedures are dramatically different in cases where the party in debt is a business rather than an individual.
Frequently, collecting from businesses is an easier, more straightforward process, as businesses generally have substantial assets and regular revenue. However, companies are often much faster to file for bankruptcy during times of financial hardship when compared with individuals.
Creditors owed money by companies that have filed for bankruptcy may need assistance understanding what options they have for continuing their collection efforts, potentially including the three options below.
1. Challenging transfers as fraudulent
Frequently, companies transfer valuable resources as a means of limiting collection efforts or preserving certain key resources for after the bankruptcy. Challenging transfers as fraudulent attempts to avoid lawful collection efforts can be an option during and even after bankruptcy.
2. Piercing the corporate veil
When a corporation or limited liability (LLC) owes money, the parties that technically own the organization usually have protection from financial liability. In cases involving fraud or the commingling of personal and business resources, it is sometimes possible to pierce the corporate veil and hold individuals accountable for organizational debts.
3. Requesting relief
The courts often hear legal claims brought by creditors during bankruptcy proceedings. Known as adversary proceedings, these lawsuits can lift the automatic stay for certain creditors or even allow for the exclusion of specific debts from the discharge granted at the end of the bankruptcy process.
Creditors seeking repayment for valid debts may have multiple options available to them when a business files for bankruptcy. Discussing the debt and the type of bankruptcy initiated with a legal professional can help frustrated business leaders more effectively understand their options.