Debt collection in bankruptcy often immediately raises questions among entrepreneurs. When a debtor goes bankrupt, collecting outstanding invoices seems hopeless. Yet there are situations in which collection or recovery after insolvency can indeed be worthwhile. In this article, you will read when debt collection in bankruptcy still offers possibilities, which routes exist, and what you as a creditor should be alert to.
What changes for debt collection in bankruptcy?
After a declaration of bankruptcy, the debtor loses control over his assets and a trustee is appointed. Individual collection measures are then, in principle, no longer permitted. However, that does not mean that debt collection in bankruptcy is always excluded.
For creditors, among other things, the following applies:
- claims must be filed with the trustee;
- individual seizure is no longer possible;
- payment depends on the proceeds of the estate;
- the ranking of creditors is decisive.
When is debt collection in bankruptcy pointless?
In many cases debt collection in bankruptcy has limited prospects of success, particularly when there is an ordinary unsecured claim without collateral. Often, unsecured creditors receive only a small percentage of their claim or nothing at all.
Debt collection is generally not worthwhile when:
- no security interests have been established;
- the estate is empty or heavily encumbered;
- there is no unlawful conduct;
- directors’ liability is not at issue.
Situations in which debt collection in bankruptcy can indeed be worthwhile
Still, there are important exceptions. Debt collection in bankruptcy can still offer possibilities in the following situations:
Retention of title
If a retention of title has been properly agreed, the goods delivered can fall outside the bankruptcy estate. This may mean that you can take back goods or enforce payment.
Pledge or mortgage rights
Creditors with security have a stronger position. They can recover with priority from pledged or mortgaged assets, making collection after bankruptcy more realistic.
Fraudulent conveyance
In the case of debt collection in bankruptcy an investigation can also be conducted into fraudulent conveyance. If the debtor removed assets shortly before bankruptcy or preferred certain creditors, this can be reversed.
Directors’ liability
In some cases it is possible to hold directors personally liable. This can provide additional avenues for recovery outside the bankruptcy.
The role of the trustee
The trustee manages the estate and assesses submitted claims. In debt collection in bankruptcy it is important to file your claim on time and correctly. In addition, consulting with the trustee can provide insight into the chances of a payout.
Limitation and interruption
Limitation remains relevant even in insolvency. Filing a claim with the trustee can interrupt the limitation period, but this must be done carefully. Timely legal advice prevents rights from being lost.
International aspects in debt collection after bankruptcy
In cross-border trade, can debt collection in bankruptcy be extra complex. Foreign creditors are faced with questions about recognition of the bankruptcy, jurisdiction, and priority.
General information about the position of creditors in bankruptcy can be found on Rechtspraak.nl .
Common mistakes in debt collection after bankruptcy
- filing the claim too late;
- failing to investigate security interests;
- forgetting to consider fraudulent transfers;
- too quickly abandoning legal options;
- not determining a strategy for each creditor position.
What can Arslan Advocaten do for you?
Arslan Advocaten advises entrepreneurs on debt collection in bankruptcy. We assess whether recovery is still possible, explore alternative routes, and advise on a realistic cost-benefit assessment.
Read more about our expertise in business law, our approach to bankruptcy of a contracting party and our knowledge of directors’ liability in bankruptcy .
Costs and litigation funding in insolvency disputes
In disputes concerning debt collection in bankruptcy we generally work not on a no cure no pay basis. Insolvency cases require a careful legal assessment.
In certain cases it can be examined whether litigation funding is possible. We work with an independent litigation funder who – after assessment – may be willing to finance the attorney’s fees (in part).
About the author
This article was written by Onur Arslan, attorney and founder of Arslan Advocaten. He specializes in commercial disputes, including debt collection, bankruptcy and insolvency matters.
Do you want to know whether debt collection is still worthwhile in your situation after bankruptcy?
