How can a creditor protect their rights if debtor files bankruptcy? California Bankruptcy

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Question: Bankruptcy - California

Asked on 11/4/2009

How can a creditor protect their rights if debtor files bankruptcy?

I am a small IL business that is owed money by a CA customer who damaged leased equipment. I want to protect the total debt owed if were to file for bankruptcy. The equipment was billed in 10/07 They have paid 2/5ths of the debt. They have made no further payments since 05/08. Outstanding base debt is approx $42K before fees, etc. They say they will pay when business gets better. However, it has not and may not. I want to still attempt to collect the money yet protect our rights to payment if they file bankruptcy at some point. Is there a specific CA lien or collection process that ensures we are protected if bankruptcy is filed?

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Answers (1):

B. B., Member in Good Standing of the New Jersey Bar

It sounds to me like you should ask the customer to sign a note, an i.o.u., for the debt, with interest and a payment schedule; if they won't do that, I think you will probably need to sue them to get a judgment. That would be as much protection as you can get; depending on the customer's debts and assets, that might not be much, but at least it will get you a bit closer to the "front of the line" than if you have an unliquidated (legally undetermined) claim when (if) they file.

Answered on 11/4/2009
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