As a creditor, there’s always a chance you’ll receive an official notice in the mail at some point, alerting you that someone to whom you have loaned money has filed for bankruptcy. One of the primary reasons people file for bankruptcy is to discharge some of their debts.


You must act quickly if you are to protect the interests of your business. The following are some of the issues you should consider and the steps you should take when alerted that a client has filed for bankruptcy:

  • Attend creditors’ meetings: Have a representative attend the creditors’ meeting and debtor’s deposition. This gives you the chance to ask questions of the debtor while they are under oath and to take the debtor’s deposition. This can arm you with extremely valuable information that will assist you through the rest of the bankruptcy process. Attending the creditors meeting will also allow you to understand what led to the debtor’s bankruptcy filing, and, most importantly, the correct financial status of the debtor and priority of other creditors’ claims. Keep in mind that a bankruptcy filing does not necessarily mean that the debtor is completely insolvent. Oftentimes debtors have remaining assets that can be liquidated to satisfy debts, or the debtor may even be in a position to restructure or reorganize its operations and continue paying down their obligations.
  • File Notice of Appearance: When you file a Notice of Appearance with the bankruptcy court, you will be notified by the court about all of the debtor’s actions and appearances.
  • Proof of claim: As a creditor, you have the right to file a proof of claim to ensure you are included in the distribution of any funds that are not exempt. This could, for example, involve you sharing in any repayment plans created by the debtor.
  • Automatic stay relief: If you have an interest in property owned by or leased to the debtor filing for bankruptcy, you can file for relief from the automatic stay. Successfully doing so grants you the power to either begin or continue the foreclosure process, or recover property you had leased to the debtor.
  • Dismissal: If you have just cause to do so, you can seek to have the bankruptcy case dismissed entirely. Examples of scenarios in which the court will consider a dismissal include bad faith or qualification issues. This immediately returns both parties to their pre-bankruptcy standing and allows you more options in seeking the funds you are owed.
  • Review reports: You have the right as a creditor to review monthly reports under Chapter 11 bankruptcy that are sent to the U.S. Trustee after they’re filed with the bankruptcy court. These reports can provide some useful and illuminating information about the case.
  • Debt discharge objections: You can object to the discharge of any debts owed to you. You may also file a non-dischargeability complaint if any debts were incurred via fraud or false financial statements, or were incurred shortly before the debtor filed for bankruptcy. This complaint is due within 60 days after the creditors’ meeting.

For more information about how you can protect your interests when a debtor files for bankruptcy, contact an experienced U.S. Virgin Islands bankruptcy lawyer.

Nash Davis is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.