If a business provides services and products to other businesses, its success is closely linked to that of the client. When a client company declares chapter 11 bankruptcy, it’s natural to wonder how the serving company will be affected. Chapter 11 bankruptcy attorneys in Arnold can answer questions about recovering payments from a bankrupt business.
Priority Claims
The bankruptcy process comes with a claims hierarchy, which means that some creditors are more important than others are. There are various claim types, such as administrative, priority, secured, unsecured and equity interests. Whether a creditor receives money depends on the claim type, as well as the total number of claims lodged by other creditors.
Will a Company Be Paid If a Claim Arose After Bankruptcy Was Declared?
During a chapter 11 case, claims arising after a bankruptcy declaration receive administrative expense status, which means they are a higher priority than other claim types. Therefore, it may be to a creditor’s advantage to wait to file a claim until after the provider files for bankruptcy.
Will Chapter 7 or Chapter 11 Yield a Higher Payment to a Creditor?
Generally, chapter 7 bankruptcies result in an asset liquidation, and these assets are typically sold for less than they are worth. Creditors can expect a higher payment from a business that declares chapter 11 bankruptcy, which involves a reorganization of the business and its liabilities. Creditors in chapter 11 cases are more likely to receive all the money they’re owed.
Ensuring a Full Payment
Depending on the nature of the claim against the debtor, a company can use various strategies to increase its chances of getting a full payment. Chapter 11 bankruptcy attorneys in Arnold can explain a client’s legal options and help them determine the best way to proceed.
If a company that recently filed for bankruptcy protection owes another company money, they can turn to a local bankruptcy law firm for help and advice. Visit Stlbankruptcyfirm.com to learn more about the firm’s bankruptcy and debt relief experience, or call the office today to schedule a free consultation with a bankruptcy lawyer today.
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