Areas of Practice:

We offer a wide variety of services to business throughout Southern California including:

• Prosecution and defense of copyrights and trademarks
• IP Portfolio Management (Domestic & International)
• Domain name disputes
• Business Purchase/Sale Disputes
• Trade secret misappropriation
• Shareholder/Partnership Disputes
• Unfair Competition
• Breach of Fiduciary Duty
• Business Transaction Disputes
• Business Fraud
• Breach of Contract


Bankruptcy filings by clients who are indebted to your business are a possible reality that may arise for your California company. The bankruptcy process requires specific rules to be followed by both the debtor and the creditor. An individual or company’s financial situation may be revealed in the bankruptcy filing and the 341 notice received by your business. In addition to the type of bankruptcy filed and the date the case was filed with the court, these documents will also describe the following:

  • Court in which the bankruptcy case is being heard;
  • Deadline to file a proof of claim;
  • Time, date, and place for the first meeting of creditors; and
  • Rules for collecting what is owed to your business.
Effect of Bankruptcy Filing

Chapter 7 and Chapter 13 bankruptcy filings provide immediate relief for debtors from creditors trying to collect the monies owed. As soon as a bankruptcy case is filed, the court issues an Automatic Stay that prevents nearly all creditors from pursing collecting while the case remains open. Activities that are considered collection include evictions, wage garnishments, pending foreclosure sales, lawsuits, bill collection calls and letters, among others. These types of attempts to collect the debt are frozen until the Stay is lifted. This can occur at the conclusion of the bankruptcy case or sooner, through a Motion for Relief from Stay (Motion for Relief).

Seeking Relief from Automatic Stay

In a Chapter 7 bankruptcy, a Stay generally remains until the case is closed, which can typically take three to four months after the initial filing. In a Chapter 13 bankruptcy, on the other hand, the Stay may remain effective throughout the duration of the three or five-year plan to pay back debts. In either scenario, a secured creditor may file a Motion for Relief from Stay requesting the judge lift the Stay. If granted, the Stay will remain in effect to all the other creditors except the one that was granted relief. As a result, the creditor may continue collection efforts despite the bankruptcy. One exception exists under the Bankruptcy Code: Secured lenders may repossess a car without filing a Motion for Relief of Stay if the vehicle secures the purchase money loan from the auto lender and a reaffirmation agreement was not signed.

A creditor is entitled to a hearing when a creditor files a Motion for Relief. The burden is on the creditor to convince the court that there is good cause to lift the Stay as the court is predisposed to leave it in place and continue bankruptcy protection. The creditor also bears the burden of showing it has standing to bring the motion. A court is more likely to grant the Motion for Relief if the debtor is not making payments on a secured debt or if the collateral is not being properly protected.

Protecting Your Interest

There are other minor exceptions or additions to seeking payment for your California business from a debtor who has gone into bankruptcy. If you have a claim against a bankrupt debtor and want to understand your options under the law, contact a knowledgeable attorney for a consultation. The Law Office of Michael H. Bassiri serves the legal needs of small and medium businesses across California in Orange County and Los Angeles, California. Call (949) 222-0209 or Toll Free (888) 530-2001 today to schedule your initial case evaluation.

Schedule a call or send me your case details by filling the contact form.