Bankruptcies happen. They happen in booming economies as well as in recessionary ones, and they likely will massively occur in the frozen business environment caused by the COVID-19 pandemic. The suddenness of the pandemic's onset is unprecedented. For many, consequently, dealing with those bankruptcies will be an unwanted and unanticipated new experience. Nevertheless, corporate and individual creditors of those prospective — or already-filed — debtors will want to do what they can, when they can, to protect their interests and minimize the damage to their own operations.

This article offers 10 simple tips to help achieve those protections. Your mileage may vary, as the saying goes, but it remains important to buckle your seat belt.

1. Review your contracts and credit terms.

When a customer enters a Chapter 11 bankruptcy, the automatic stay prevents creditors from commencing or continuing any efforts to collect a debt that relates to the period prior to the bankruptcy filing date. That means that a creditor cannot sue, cannot write demand letters, and cannot verbally demand payment of "pre-petition" accounts receivable. That does not, however, mean that one should do nothing.

First, a creditor would be well-advised to collect and preserve all documents relevant to their business relationship with the debtor. These will include contracts, delivery confirmations, bills of lading, credit agreements, and anything else that provides the factual and legal basis for claims against the debtor. Proofs of claim (the formal documents establishing creditors' rights to payment through the bankruptcy process) must provide adequate detail to prove one's claim, and it is never too soon to assemble that support.

Second, because a "debtor-in-possession" will typically continue to operate during its bankruptcy case, creditors must decide whether they wish to continue to do business with a debtor following the filing. Often debtors will reach out to suppliers to secure specific post-petition credit terms, sometimes with the assistance of the creditors committee (see below). That said, each creditor must make their own assessment of the post-petition creditworthiness of the debtor. Many Chapter 11 cases are unsuccessful and "convert" to liquidations under Chapter 7, often leaving those who supplied the debtor post-petition burned twice.

Third, irrespective of whether you're going to do post-petition business with the debtor, file your "proof of claim" in order to avoid being barred from your rightful recovery from the debtor's bankruptcy estate (see discussion below regarding the "bar date").

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.