Has somebody who owes you money recently filed bankruptcy?
October, 2005
On October 17, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became effective, representing the most significant reformation of bankruptcy law in over a decade. As the deadline approached, an unprecedented number of consumers from across the country were prompted to file for bankruptcy protection before the new law took effect.
Whether you are the owner of a business that provided credit to a customer, or someone that merely loaned money to a friend or family member, learning that they have filed for bankruptcy protection requires immediate action on your part. With very few exceptions, cases filed before and after the Act require creditors to immediately cease any activity for the enforcement or collection of debt under the Automatic Stay of 11 USC §362. Thereafter, pursuing a debtor without first obtaining relief from the bankruptcy court could result in an award of damages against you. While there are exceptions to the Automatic Stay, they can be confusing and counter-intuitive to someone unfamiliar with the bankruptcy code.
If you are a creditor that got paid just before the debtor filed, then beware: it may be a little early to celebrate. A bankruptcy trustee may be entitled to recover the money or property you received from the debtor, referred to as a "preferential transfer" under 11 USC §547, in the 90 days before the bankruptcy filing, if you were an ordinary creditor; or within one year before the bankruptcy, if you were a family member or other "insider." Thus, while there are certain exceptions and defenses, you could actually be required to return money or property you obtained from the debtor even if it is no longer in your possession. If you receive a demand for return of a preferential transfer, do not ignore it.
While the new Act will apply to all filings after October 16, 2005, fallout from the large number of bankruptcies it prompted will continue for several months or years to come. Please contact your bankruptcy attorney for an analysis of your options.