Bankruptcy Claims and Credit Insurance

When notified that your client filed bankruptcy, your client is now a debtor, and you begin gathering all relevant information, including:

1.     Quotes

2.     Orders

3.     Invoices

4.     Proof of delivery

5.     Collection activity

6.     Correspondence with the client

7.     Other items that may be needed

As with all unforeseen risks, time has a powerful, sobering effect.  Dates and responsibilities ensue, you begin corresponding with other parties, adapting to events as they unfold.  You will swiftly discover that your rights as an unsecured creditor are less than ideal.

Bankruptcy courts are unlikely to cut corners on your behalf when it comes to documentation of debt you are owed, as it is the job of the trustee to squeeze every dollar from the estate—that means the onus is on you to defend what is rightfully yours.  Good recordkeeping is essential. 

If selling on open account, you should consider the following as a minimum expectation for every transaction:

Remember, this is just the beginning of the process.  Attending creditor meetings, negotiating with the bankruptcy trustee, and other such activities lie in the not-so-distant, not-so-pleasant future.  You will likely be spending considerable time, money and effort attempting to collect your money.  And, you have no idea whether your efforts will be rewarded to the extent it indicates on your original invoice.  It is highly unlikely that you will be recouping your legal expenses.

With credit insurance, life becomes a bit easier.  Yes, you need to have your documents in order.  But, unlike other unsecured creditors, you simply gather your paperwork, send it to the insurer, and wait for your claim payment.  The credit insurance company gets to go to the creditor meetings, listen to the trustee, while you get on with business.

Yes, your client filed bankruptcy, but dealing with the aftermath wasn’t so bad.