When a bankruptcy case is filed, the Clerk of Bankruptcy Court mails a notice of commencement to the Debtor (bankrupt), the Debtor’s attorney, the creditors of the Debtor, as well as other “parties in interest”.  With the proliferation of corporate bankruptcies, and expected increase in the number of municipal bankruptcy filings, it will not be uncommon for people who do not consider themselves as traditional creditors (such as banks and credit card companies) or parties in interest to receive a notice of commencement from a bankruptcy court.  The question becomes, “[w]hy did I receive it, and what do I need to do (if anything)?”  Hopefully this blog can be of some assistance.

YOU MAY BE A CREDITOR OF AN INDIVIDUAL OR COUPLE – This means that the person who filed bankruptcy owes you money, or thinks that they may owe you money.  This could be because you loaned money to this individual, or performed work or services for which you were not paid.  This could also mean that you may have a potential claim against the person – for example, a personal injury claim or property damage claim.  Regardless, you are prohibited from contacting the Debtor with respect to the debt.  Because Debtors are required to disclose all of their debts, even family members who provided personal loans will receive a bankruptcy notice (assuming this information was disclosed to the attorney).

YOU MAY BE A CREDITOR OF A BUSINESS OR MUNICIPALITY – Unfortunately, bankruptcies for businesses and even cities are increasing.  Unlike the typical consumer case, where the average amount of creditors listed is between 15-25, a corporate or municipal bankruptcy may have tens of thousands of creditors.  Keep in mind that the term “creditor” in bankruptcy includes potential and unliquidated claims, and is not confined to a precise debt.  A common example of an individual receiving a corporate bankruptcy notice is if you had purchased a gift card from a company that filed for bankruptcy.  You are a creditor for the amount of the gift card.  Or you may have been part of a class action against a company (whether you knew it or not) for charging improper or undisclosed fees.  With respect to a municipality, you may be entitled to receive some type of benefits or pension which could be jeopardized by the bankruptcy filing.

YOU MAY BE A COSIGNER OF THE DEBTOR – As a cosigner or guarantor, you share liability with the debtor who has filed for bankruptcy.  As a result, a debtor is required to disclose this information in their bankruptcy petition.  You are being notified of their bankruptcy because it may affect your rights with respect to the cosigned debt.  Depending upon the type of debt and the debtor’s intentions, it may also mean that you are going to be solely responsible for the debt.  Read more here about what to know before cosigning a loan.

YOU MAY HAVE A CONTRACT OR LEASE WITH THE DEBTOR – A bankruptcy filing allows a debtor to cancel any executor (unperformed) contracts or leases.  It also allows the debtor or the bankruptcy trustee to accept (continue) the contract or lease.  If you are a landlord of the debtor, or someone who provides ongoing services to the debtor -such as a gym, lawn maintenance service, or homeowner’s association – you may receive a bankruptcy notice.  The bankruptcy petition should disclose whether the debtor intends to cancel the lease or contract, or accept (maintain) it.

YOU MAY BE OWED A DOMESTIC SUPPORT OBLIGATION BY THE DEBTOR – When a debtor files for bankruptcy, they are required to disclose anyone to whom they owe a “domestic support obligation”.  This includes child support, alimony, or any other court-ordered payment in the nature of support.  Since these types of debts cannot be discharged, there is no reason to panic if you receive a bankruptcy notice regarding the person from whom you receive domestic support payments.  The notice will be sent regardless of whether the support obligation is current or delinquent.

If you have questions about the bankruptcy notice, you may wish to contact the attorney for the debtor listed on the notice.  However, the debtor’s attorney cannot advise you of all of your rights, or what you may need to do to protect yourself.  DO NOT CONTACT THE DEBTOR DIRECTLY, as this could lead to fines from the Court.  Please also keep in mind that the Clerk of Bankruptcy Court cannot provide legal advice.  If you still have questions or concerns after speaking with the debtor’s bankruptcy attorney, you may wish to consult your own attorney to determine what (if anything) needs to be done with respect to the bankruptcy filing.