1.   I am owed money from a company that has filed bankruptcy.  What should I do?

If you are owed money for goods or services provided prior to the bankruptcy, there is a procedure for presenting your claim to the bankruptcy court.  When a company files for bankruptcy, it has to file a schedule of debts (i.e., who is owed money and how much).  If you are scheduled and the amount owed is correct, then you are not required to do anything.  If you are not scheduled, or the amount is incorrect, you must file a proof of claim.  Often, you will receive a notice of bankruptcy by mail that includes the proof of claim form.  Otherwise, you can generally obtain the form from the Bankruptcy Courts website.  The form will include instructions to help you properly fill out the form and provide supporting documentation for the claim.  Some creditors choose to file the proof of claim even if their claim is properly listed in the debtors schedules.  You may choose to hire bankruptcy counsel to help you in this process. 

2.   I filed a proof of claim with the Bankruptcy Court and have now received an objection to my claim.  What should I do? 

You will be required to file a written response to the objection and to attend the hearing on the objection.  If you do not file a response or do not show up at the hearing, the Court may grant the objection and expunge your claim.  In that event, you will receive no recovery on your claim in the bankruptcy court.  You can contact the objecting party (debtor or trustee) and negotiate your claim.  Objections to claims are often settled prior to the hearing.  

3.   I provided goods and/or services to a company in bankruptcy.  What can I do to get paid?  

You may be entitled to file what is known as an administrative claim.  A number of factors affect whether or not your claim is valid.  If the motion for approval of the administrative claim is approved, you will be paid before the unsecured pre-petition claimholders.  If you are providing professional services (e.g., lawyer, accountant), you will need to get court approval to be hired by the debtor.  

4.   I have been sued by a company in bankruptcy for recovery of preferential payments.  What should I do?  

You should receive a document called a complaint that is the official lawsuit filing with the bankruptcy court.  The complaint will set forth the nature of the allegations against you and how much money you allegedly owe.  The papers you received should also include a summons that indicates by when your written answer to the complaint must be filed with the bankruptcy court.  If you fail to respond timely, you may get a default judgment against you.  It is vital that you respond by the deadline and avoid a default judgment.   

By way of background information, the preference action is a claim that can be brought by the bankruptcy estate to recover payments the debtor made to you in the 90 days before filing bankruptcy for antecedent debts (note that the 90-day period is extended for certain insiders based on their relationship to the debtor).  For example, suppose you shipped the debtor a truck load of widgets.  Several weeks later, and within the 90 day period before the company filed bankruptcy, the company gave you a check to pay for the widgets.  This was payment for an antecedent (prior accrued) debt and may be recoverable by the bankruptcy estate.  The policy in play here is when a company is heading into bankruptcy, it should not be preferring (i.e., paying) certain creditors while not paying others. 

By requiring all of the money to be returned and then redistributed to all of the pre-petition creditors pro-rata (i.e., based on the outstanding amounts owed to the various creditors like yourself), every creditor is treated the same and none are preferred over others.  Without this procedure, a company heading into bankruptcy might pay certain creditors in full, ignore the others, and then file for bankruptcy, which the law sees as an unfair distribution of the assets.  Note that there are several potential defenses you may have that bankruptcy counsel can help you analyze.      

5.   I have been sued by a company in bankruptcy for recovery of a fraudulent transfer.  What should I do?  

You should receive a document called a complaint that is the official awsuit filing with the bankruptcy court.  The complaint will set forth the nature of the allegations against you and how much money you allegedly owe.  The papers you received should also include a summons that indicates by when your written answer to the complaint must be filed with the bankruptcy court.  If you fail to respond timely, you may get a default judgment against you.  It is vital that you respond by the deadline and avoid a default judgment.    By way of background information, a fraudulent transfer does not imply fraud in the traditional sense (i.e., a misrepresentation).  Instead, what is meant is that assets of the debtor were transferred for less than their fair market value.  You can easily imagine a situation where a company knows it is going under so it sales valuable assets for pennies on the dollar, perhaps to family and friends of the companys owner, just prior to filing for bankruptcy.  This effectively loots the company of its value and diminishes the potential recovery of the companys creditors.  There are several potential defenses to a fraudulent transfer claim that bankruptcy counsel can help you analyze.  

6.  I have received a demand letter from a company in bankruptcy seeking to recover for preferential payments.  What should I do?   

Review the answer to question 4 above.  It is often advisable to get the assistance of bankruptcy counsel at this stage.  These sorts of claims are routinely settled prior to the actual awsuit being filed.  This saves you money.  Bankruptcy counsel can help you analyze your potential defenses and draft a written response to the demand that sets forth the basis for the defenses you have and attempts to resolve the dispute.  If you ignore the letter, the debtor will sue you.  This will ikely increase your costs and time commitment to get the matter resolved.  

7.  I have a judgment from a state other than Texas.  Can I collect on the judgment in Texas?  

Yes, Texas law provides for a procedure to domesticate the judgment.  The domestication process has the effect of giving you a Texas state court judgment that is enforceable in Texas.  A similar procedure is available for federal judgments.  After the judgment is domesticated, all of the various post-judgment remedies under Texas law are at your disposal to enforce the judgment against non-exempt assets located in Texas.   

8.   I already have a judgment.  How can I find out if the judgment debtor has assets in Texas?   

There are services available that can retrieve certain limited information about bank accounts and brokerage accounts.  Public records will identify the real property and vehicles (i.e., cars, boats, planes) owned by the judgment debtor.  Texas procedure also allows you to do post-judgment discovery for instance, a deposition and interrogatories of the judgment debtor to determine what assets are held from which the judgment may be satisfied.  In some instances, it makes sense to request that the court appoint a receiver to facilitate in collecting on the judgment.  A collections attorney will have various databases from which to retrieve information about the judgment debtors assets.  

9.   I already have a judgment and the judgment debtor has assets in Texas.  What sort of assets can I execute on and what assets are exempt from execution? 

Texas law protects certain property from execution.  For instance, the judgment debtors homestead (residence) is exempt from execution, subject to certain limitations to the amount of acreage.  Wages are exempt, cemetery plots are exempt, as well other property up to a certain value, including two guns, jewelry and livestock.  Chapter 40 of the Texas Property Code sets forth the contours of these and other exemptions.   

10. What is a garnishment?  

If a third party owes the judgment debtor money, a garnishment action can facilitate you collecting on the judgment by getting the money from the third party rather than directly from the judgment debtor.  For instance, suppose the judgment debtor has money in a savings account at a bank.  Essentially, that is money the bank owes the judgment debtor, and that money may be subject to garnishment to pay your judgment.  The actual garnishment procedure involves an order sent to the third party and requiring them to answer under oath whether they have any assets belonging to the judgment debtor or are obligated to provide money or goods to the judgment debtor.  The third partys answer has to be filed with the court, and based on the answer, the court may issue an order requiring turnover of the money or assets.  The garnishment procedure locks up the assets until the court makes a determination of whether they are subject to execution to satisfy the judgment. 

11.  What is a turnover? 

A turnover refers to an order from the court for the judgment debtor or another party to turnover assets to the Court that are subject to execution in order to satisfy the judgment.   

12.  What is a receivership?

In order to aid in the enforcement of a judgment, the court can appoint a receiver (typically an attorney) to try to collect on the judgment.  The receivers fees must be paid from what is collected and the fees must be approved by the court.  The receivers duty is to figure out what assets the judgment debtor has that are not exempt from execution and to try to get the various creditors paid.  A typical example of when a receiver is appropriate is when the judgment debtor owns real property that is not exempt from execution.  The receiver will, with court approval, hire a real estate broker to market the property, sell it, and approve the sale with the court, as a means of obtaining money to pay the judgment.   

13.  What is a sequestration?  

 In Texas, this is primarily a procedure for foreclosing on vehicles (i.e., cars, boats, motor homes) that were used as collateral for a loan.  For example, when a borrower fails to pay their car note, the lender will seek a writ of sequestration to recover the car so that it can be sold and the money applied to the outstanding debt.  

14.   I already have a judgment.  Is there a process for garnishment of the judgment debtors wages?   

No, Texas law does not permit you to garnish wages.  Note that money paid for services may not be considered wages.  For example, fees due a lawyer from his client are not wages and can be garnished. 

15. I already have a judgment.  Is there a process for garnishment of bank accounts? 

Yes, this is a very common garnishment procedure.  Also see the response to 10 above. 

16.  I have a judgment against a company and it has sold or transferred its assets.  What can I do? 

If the assets were sold for less than fair market value, you may have a fraudulent transfer claim that would allow you to recover the assets.  The law attempts to prevent judgment debtors from selling assets at less than fair market value or giving them away in order to avoid their execution by a creditor to satisfy a judgment. 

17.  A company owes me money.  What can I do to collect the money before filing a lawsuit? 

It is important to make formal demand in writing to seek recovery of the money owed before spending money on litigation.  You should make every reasonable attempt to communicate with the company that owes you money.  If you hire a collections attorney, a letter from that attorney may also carry more weight and facilitate a resolution of the matter without having to go to court.  

18.  I have a judgment against a foreign country.  What can I do to collect on the judgment? 

Pursuant to the Foreign Sovereign Immunities Act and state post-judgment remedies, you may be able to collect on your judgment, particularly as to any assets in the United States.  These collections efforts have to be done in federal court, but certain state collections procedures (e.g., garnishment) may be available to assist you even though you are in federal court.  This is a specialized area of international aw and assistance from a collections attorney with experience in this area will be needed.   

19.  I have a judgment against a non-domestic company.  What can I do to collect on the judgment?  

Depending on where the judgment was issued, you may be able to domesticate the judgment and enforce it in the United States in the same manner as domestic judgments. 

CONTACT US

To speak to an attorney about a bankruptcy or creditor's rights question, please contact us here, or call us at 713.650.9700.

Home  l  About Us  l  Disclaimer  l  Contact l Site Map

Houston  l  The Woodlands