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What to Do If Your Customer Owes You Money and Files for Bankruptcy

Attend the creditors meeting. When you attend the “341” creditors meeting – held with the trustee, the debtor and all creditors — you will learn about the debtor’s plan to compensate creditors and can object at that time if you feel you are being treated unfairly.

Review repayment plan. Once a court-appointed trustee approves the debtor’s repayment plan, copies are sent to all creditors for comment. For final approval, the plan must be agreed to by at least half the number of creditors representing two-thirds of the total amount owed. The disclosures in this document will tell you how the debtor plans to repay you.

Do your due diligence. Before you extend credit, be sure to run a background check or credit check – and if you notice a change in payment behavior, run another one. Slow pay from a customer who usually pays on time is a big warning sign. Keep careful track of your receivables and contact customers who are not paying on time – in other words, be the squeaky wheel that gets the grease.

File a UCC form before giving credit. One step you can take to proactively protect your business is to file a Uniform Commercial Code 1 form with your state or county to insure the receivables. If your customer files bankruptcy, the UCC filing does not guarantee you will be paid, but it does move you up in line ahead of other creditors without one.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.

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