Can You Recover Your Debt if Your Client Files for Bankruptcy?

Maintaining our status as a reputable debt collection agency, eCollect will answer most, if not all, questions arising from debt collection activity.

We often get people asking us what to do if a customer who owes them money files for bankruptcy. It is a risk that all businesses face, but it helps to know your rights as well as the ways to deal with the situation. Read on to learn what to do if a customer owing you money declares bankruptcy.

What is Bankruptcy?

Bankruptcy is a legal process used by an individual seeking relief from their financial troubles in the form of outstanding debts. Companies have a similar process known as “Liquidation”. Bankruptcy involves applying to a court in a situation where a debtor is unable to pay their debts. The court will then appoint a trustee to manage the assets and work out how to distribute them. They will establish the priority in which the creditors should receive money.

The trustee will notify you if you are listed as a creditor. They will inform you about the sum you are likely to receive as payment for your outstanding debt. You will need to submit a proof of debt and file a claim with the trustee, mentioning the details about how much the client owes along with the particulars of the transaction.

Recovering Your Debt

The chances of receiving your money in case your client goes bankrupt depend on the following aspects:

  • The total number of creditors who are owed money
  • The value of the assets available to be liquidated
  • The priority in which the creditors will receive money

The possibility of receiving any money back is significantly reduced as the number of creditors increase. Also, if you are dealing with a small client, it is less likely that they will have the assets required to liquidate and pay off all the debts. In addition to this, if you are an unsecured creditor, you will be paid only after the trustee’s expenses, government fees and payments to banks and other secured creditors are made.

If you require advice about collecting a debt from a bankrupt estate, it is advisable to hire professional debt collectors to seek advice and ensure that you follow the correct procedures.

Debt Collectors’ Tip to Prevent Losses from a Customer’s Bankruptcy

eCollect has the knowledge and experience to deal with a trustee in case a client declares bankruptcy. But prevention and preparation should be done in advance. Here are the experts’ tips to help you avoid such situations:

  • Terms of Trade

As a business owner, it is essential that you establish clear terms of trade when entering into any transaction. Also, you must make any new customers aware of these terms. It helps to include that the debtor will be liable for any cost of debt recovery if and when required.

  • Credit Checks and Trade References

It is vital to know about the business and credit history of your new clients. Analyzing their business profile and conducting a credit check may help reduce the risk of incurring debts in the future.

Hiring a Debt Collection Agency Can Help You Recover Debts

eCollect’s general rule of thumb is to hire professional debt collectors if you have an overdue account and have made contact with the debtor for three times or more without payment.

eCollect is an experienced and reliable debt collection agency in Melbourne. We have knowledge of the best debt recovery practices and the most appropriate methods to prevent bad debts or recover your outstanding debts while ensuring that your brand name and relationships are protected.

If you have any outstanding debts and would like to discuss ways to obtain your money back, please give us a call on 1300 666 585. We provide 24/7 support to our clients and ensure that their requirements are adequately met.