When a creditor goes bankrupt, it’s; leaders, investors, customers, and the employees all go through the same stress. And, even if the company remains operational, the chances are high that their services do not continue as active as usual.
What Is Bankruptcy?
Bankruptcy is a legal status of an entity or person who cannot repay their outstanding debts. In most occasions, bankruptcy is imposed by court order initiated by the debtor.
What Happens to a Company If the Creditor Goes Bankrupt?
- Some companies operate in debts or have serious financial problems that make them discontinue their operations immediately. Most of them liquidate the company. Others sell their assets for cash with the help of a court-appointed trustee. The legal and administrative costs are resettled first. The remaining is used to pay the creditors. According to the bankruptcy law; a company must pay all its dues as per the federal rules.
- The company returns the secured collaterals to the owners. If the value of the collateral is not worth the cash, they will group with the unsecured debts. All unsecured creditors and bondholders are also notified. They should, therefore, express their claims if there are still funds remaining.
- In most occasions, the company may not inform the stockholders. They usually don’t receive anything as a return of their investments. However, once the creditors are repaid in full, the stakeholders have a chance to file their claims.
The Other Side of the Coin
However, if the bankruptcy is a result of restructuring and not liquidation, the creditor company will keep carrying out its regular activities to pay their creditors too. The company could have received partial or all forgiveness for the dues.
But at the same time, the company will need to continue with the usual business to repay all the cash they owe. Some employees might lose their jobs and lead to slow technical or customer’s services. But you will still be expected to pay.
What Are Creditors Rights If a Company Becomes Bankrupt?
The creditors have the right to legally claiming for the dues they owe the company. They can achieve this by selling the debtor’s assets or by calling in administrators to help in the process. The creditors can even go ahead to auction the debtor’s properties.
However, the creditors can’t do anything if the amount of the property or assets is still not enough.
What Are My Rights When the Creditor Goes Bankrupt?
You have the right to stay informed of the progress. Sometimes, you may learn about the information in the news or even through the website. However, you have the right to be acknowledged of the current situation. And I possible, know the way forward.
You can get more information from the following sources:
You can still get financial help from other institutions if your creditor goes bankrupt. Especially at a time when your projects were not yet established.
Do I Need to Pay the Company that Goes Bankrupt?
Yes, you should pay the company what you owe them. Why? Your debt does not disappear when the company goes bankrupt.
- If you have bought any product or benefited from the services of that company, you are held legally responsible for paying for the services. If it is a credit card company, home loan, auto loan or even a payday loan, you will have to return the agreed amount.
- There are many reasons why you can’t assume the debt should be forgotten just because the creditor goes bankrupt. The main one – is that the company you owe may also have its creditors. When the company becomes insolvent, a trustee should pay the creditors by liquidating the company proceeds. This implies that the money you owe then is part of the company assets.
- When you fail to settle the debts, you will face a collection agency. And, therefore, better to pay the cash early enough before you face the lawsuit and other debt collection efforts.
Any company can go bankrupt to poor management or unavoidable circumstances. However, the issue can be partly solved by keeping all the parties involved in light of what’s happening.
1. James Hirby. If I Owe Money to a Company that is Going Bankrupt, Do I Still Have to Pay Them? The Law Dictionary. Available at https://thelawdictionary.org/article/if-i-owe-money-to-a-company-that-is-going-bankrupt-do-i-still-have-to-pay-them/
2. Can a creditor make me bankrupt? StepChange Debt Charity. Available at https://www.stepchange.org/debt-info/creditors-making-you-bankrupt.aspx
3. David Rodeck. Who Gets Paid First When a Company Goes Bankrupt? Chron. Available at https://work.chron.com/gets-paid-first-company-goes-bankrupt-7496.html
4. David Rodeck. Creditors still chasing you after you go bankrupt. Citizens Advice. Available at https://www.citizensadvice.org.uk/debt-and-money/debt-solutions/bankruptcy-2/after-you-go-bankrupt/creditors-still-chasing-you-after-you-go-bankrupt/