How do you know when to involve an attorney in a bankruptcy case? In this 5 Minute Legal Master Series, Board certified business bankruptcy and creditors’ rights specialist, Kirk Burkley, will explain when it’s the right time to hire a lawyer.
When to involve an attorney in a Bankruptcy Case
Today’s topic is when to involve an attorney in a bankruptcy case. This is a question that we often hear from clients and other people in the business which is, “Hey! The company went bankrupt, doesn’t that mean they don’t have any money so why would I hire an attorney to help me in this case and isn’t that just throwing good money after bad. The answer is, it depends.
Let me just start off with the basic notion that bankruptcy is definitely one of those places where the squeaky wheel gets the grease. Often times in bankruptcy proceeding, the debtor has for some period of time prior to the case been fending off creditors, either creditor such as their bank trying to foreclose on property or other assets, unsecured creditors and file lawsuits. Some sort of proceeding that has caused the debtor to say I need to avail myself of the automatic stay and stop all these creditor collection activities. So those creditors that drove the company into bankruptcy have already taken some action that is now stayed by the bankruptcy case.
Usually what happens is some other creditor maybe the same creditors show up in the bankruptcy case demanding payment. And the debtor is probably trying to survive on its last legs or attempting to get a sale done and they’re going to take care of the creditors that are preventing them from doing that. So creditors that sit back and do nothing in the case even if they’re not being paid later in case or even if they have some interest that could be protected, oftentimes the debtor is going to ignore them. So, does that mean that because you have seen a bankruptcy case you automatically get attorney involved. No, of course it doesn’t mean that, because you first have to evaluate what is the interest that you are protecting, and is it worth hiring an attorney to protect that interest?
One of the basic notions in bankruptcy is that creditors should not be hurt worse after the date of filing of the bankruptcy than they were prior to the filing of bankruptcy. So, post-bankruptcy the debtor is supposed to be paying everybody it does business with. So again you’re not supposed to get further into the whole post-bankruptcy then you were on the date of filing. If the debtor is not able to pay its cost of administration, what we call administrative expenses, in the bankruptcy case, then that’s the case should be dismissed or converted and the court should not let the debtor continue to remain in bankruptcy.
So if you have a secured claim and there is collateral to secure your claim, so maybe you’re a bank or you loaned money on a secured basis to the to the debtor, then more often than not you should be protecting your interests and making sure the debtor is paying you or you should move to recover your collateral so that you can sell that collateral and pay off your claim.
If you are a vendor thats doing business with the bankrupt company after the following petition, you should also be getting paid. If you’re not, then you should protect that interest because an administrative claim is a top priority claim that has to be paid 100 cents on the dollar in order for the debtor to confirm a plan. So in that case, so long as it’s worth it by terms of dollars and cents you should be protecting that interest. Similarly if you have an unexpired lease or an executory contract, you should be making sure that the debtor is performing under that contract and hopefully they will eventually assume that contract so that you can get paid going forward into the future.
It all takes a discussion with your attorney, analysis of the cost and benefit of participating and protecting your interest in the bankruptcy case and whether or not the claim is of significant value that is worth it to you and taking the extra steps in bankruptcy just might make a difference between getting paid or not getting paid.