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Don’t be Afraid of Bankruptcy Court

4/30/2015 | Commercial Litigation Blog

If you ever do business on other than a strict “cash on the barrelhead” basis, sooner or later you will end up in Bankruptcy Court.  Many people run for the exits whenever they hear the words “Bankruptcy Court”.  But there’s no reason to be afraid of Bankruptcy Court, one of the best-run courts I’ve ever appeared in…

One reason why you shouldn’t be afraid of Bankruptcy Court is that — unless you hold a mortgage on the bankrupt’s1 real estate, a security interest in the bankrupt’s non real estate assets, or an ENORMOUS unsecured claim — there’s very little to be done.

You should file a Proof of Claim, and your attorney should enter an appearance to get onto the electronic service list, but beyond that, just sit, wait, and hope you’ll receive some money sometime.  Anything more than ten cents on the dollar should be considered a windfall; in many cases, unsecured crreditors receive nothing, and — because all creditors in a single class must be treated the same way — there is nothing that an individual unsecured creditor can do to improve its lot as compared to other unsecured creditors.

Explaining the options that might be available to a secured creditor could take hours, but in general, if a secured creditor’s collateral is worth the amount of the secured debt, the secured creditor will iikely be made whole, or close to it.

Takeaway : If you are unsecured, don’t count on anything.  If you are fully secured, you will probably get paid; it just won’t happen quickly.  In either event, I’d be happy to discuss your individual situation.


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