One of my Customers Filed for Ch. 7 Bankruptcy Protection. Now What?
The most important thing to remember when you receive a notice of any bankruptcy filing is that the "automatic stay" has gone immediately into effect.
This means that, once the bankruptcy petition has been filed, the debtor is immediately sheltered from any collection activity by any creditor on pre-petition debt. The "stay" encompasses almost any action that may be taken to collect on a debt.
Some of the forbidden actions are: starting a lawsuit, having a judgment entered or sending a Notice of Right to Cure. Thus, any bankruptcy notice should be immediately shared with all parties working on that account, to avoid any "stay" violations.
After appropriate measures are taken to ensure the lender will not violate the automatic stay, it is important to consider the credit that the lender has with the bankruptcy customer. For example, does the lender have a car loan, a home equity line of credit or simply an unsecured note with the debtor? What credit exists will determine what steps should be taken next.
A last consideration for lenders is whether the bankrupt customer may be interested in reaffirming on any debt with the lender. While the details of a reaffirmation agreement is a topic for another day, it is worth at least having an attorney review the bankruptcy schedules to determine if the debtor has listed the lender (and its credit) as one he or she wishes to reaffirm.
If this is the case, the lender can retain recourse rights against the bankrupt debtor, regardless of whether he or she eventually receives a bankruptcy discharge. This can be a major advantage for the lender.