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Bankruptcy court is the great emergency room of the legal system. By the time a debtor gets there, he is bleeding to death and, most likely, has been for quite some time. A siege mentality often exists among the creditors, many of who have been scrambling to recover some payment or security before the bankruptcy is filed.

Bankruptcy judges see themselves as M.A.S.H. surgeons trying to stop the bleeding as fast as possible and salvage what they can. Unlike other judges, who are only charged with upholding the law and rendering an impartial decision, bankruptcy judges must also implement a statutory scheme, the stated purpose of which is to give the debtor “a fresh start.” In plain English, that means Congress stacked the deck in favor of the debtor so quite often he can simply walk away from bankruptcy court free from his obligation to pay you back.

Your response to this scenario should not be one of total despair. Often, something can be recovered in bankruptcy, but you have to adopt a guerilla warfare mentality yourself. Perform your own triage when you learn that a customer has filed or is going to file for bankruptcy. You should evaluate whether: 1) to write off the claim immediately and cut your losses; 2) to intervene in some fashion such as filing a proof of claim, or attending the creditors meeting – both of which you can do without an attorney; or 3) to battle in a big way by bringing an adversary proceeding to have your debt found nondischargeable. This article addresses some common issues that face unsecured creditors early in a bankruptcy.

The bad news that a customer is in bankruptcy will probably come in the form of a one-page “Notice of 341 Meeting of Creditors.” Do not throw this piece of paper away. It contains valuable information. First of all, it tells you what type of a bankruptcy was filed – a Chapter 7 liquidation, a Chapter 11 reorganization, or a Chapter 13 reorganization available only to regular wage earners. Additionally, the notice tells you exactly who is the debtor. This can be important because the chances of recovery in bankruptcy may be substantially lessened in some states if the debtor’s wife joins him in the bankruptcy. For a corporate debtor, you may want to call the bankruptcy court clerk’s office to see if the parent company has also filed for bankruptcy. A number of bankruptcy courts now have web sites where you can find out this information.

The notice contains the names, addresses and phone numbers of certain key players in the bankruptcy. First of all, the debtor’s attorney is listed. You probably will not be able to speak with him directly, but chances are he will have a knowledgeable bankruptcy paralegal or secretary from whom you can obtain pertinent information about the case. Another key individual in many cases is the trustee, a lawyer or accountant responsible for collecting the debtor’s assets in Chapter 7 cases, selling them, and making a distribution to creditors. If you happen to know that the debtor sold his Rolls Royce to his father-in-law for $1,000 two weeks prior to filing for bankruptcy, the trustee is the person to call. While you cannot personally recover the Rolls Royce unless you have a security interest in it, the trustee may be able to recover it for the benefit of you and all the other unsecured creditors.

Three very important dates are listed on the notice. The first is the date of the meeting of creditors held at the bankruptcy court and conducted by the trustee. If you question whether the size of your claim warrants sending your attorney, you can go to this meeting yourself. This meeting gives you a free chance to question the debtor under oath. It provides an opportunity to build a record against the debtor to object to his discharge or the dischargeability of his debt to you. The meeting is also your chance to meet the trustee and share information with him about the debtor’s pre-bankruptcy assets and activities. In Chapter 11 cases, the meeting of creditors is your opportunity to volunteer to serve on the creditors committee and help to shape the plan of reorganization.

The notice also establishes two critical deadlines. The first is the cut-off for filing objections to the debtor’s claim of exempt property, which is 30 days after the first meeting of creditors. Suppose six months ago the debtor gave you a signed financial statement which showed that he and his wife have $45,000 worth of sterling silver flatware and jewelry. If his sworn bankruptcy schedules state that all they have now is stainless steel and costume jewelry, worth a total of $500, which they claim as exempt, you can object to their claim of exemptions because they undervalued the silver and jewelry. On the other hand, if they lied on their financial statements and never had sterling silver, you can file a complaint objecting to the dischargeability of your loan which was made based on your reliance on the false financial statement. The deadline for filing such a complaint is 60 days after the first meeting of creditors. Finally, if the debtors really do own the sterling silver and expensive jewelry, accurately disclosed it on their financial statements to you, but lied about its value on the bankruptcy schedules, you can file a complaint objecting to their discharge in bankruptcy. This must also be filed no later than 60 days after the first meeting of creditors.

Other valuable information contained in the notice of creditors meeting is the date of filing the bankruptcy, which is critical for measuring certain reach-back periods for the trustee to recover monies the debtor may have paid to you or other creditors. The case number designates the judge who will handle the case. Some judges are notoriously pro-debtor while others are known to be pro-creditor. The notice indicates whether the clerk thinks there are any assets from which a distribution will be made to creditors. The notice may tell you not to file a proof of claim because there appear to be no assets in the case. Never believe this. In one recent case, the notice reflected a “no asset” case. However, the bankruptcy schedules actually showed that the debtors had $40,000 worth of non-exempt personal property, including two gold Rolex watches!