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If a debtor declares bankruptcy, do you still get paid?

On Behalf of | Feb 26, 2022 | Collections |

Your company loaned money to someone who has failed to pay it back. You’ve tried to collect for a while, and they’ve informed you that they’re going to declare bankruptcy. They don’t believe they can ever get out of debt without it.

You’re wondering if this means that you’re simply out of luck. Will you still get paid if they declare bankruptcy?

Repayment under Chapter 7

It depends on what type of bankruptcy they declare, but if they use Chapter 7, their non-exempt assets have to be liquidated. Once these are sold, this can create some funds which are used to pay off a portion of the debts. It is unlikely that you will ever collect all of the money that you are owed through Chapter 7, but you could get a portion of it depending on how much is brought in from the liquidation of those assets.

Repayment under Chapter 13

Chapter 13 Bankruptcy is different in that it sets up a specific repayment plan. This is a plan used for those who still have an income. It usually lasts for 3 to 5 years. If the debtor uses Chapter 13 bankruptcy, you may slowly be paid back what you are owed. This can take longer than it should have, but you should recoup some of the losses based on the debt that was outstanding and how the payment plan is structured.

A situation like this can become very complicated, and there is clearly a lot of money at stake, so be sure you know what legal options you have.