Collection through bankruptcy filing

It is the horror of every business owner; a debtor who does not pay. Filing for bankruptcy can be a good pressure tool to get a debtor to pay. I wrote a blog about this before.

In that blog, I described a real-life example where the creditor had a reasonable interest in getting his claim satisfied as quickly as possible. In that case, the Court also ruled that the creditor's bankruptcy petition was not a priori hopeless or based on false information.

Litigating, or "threatening" to do so, is not easily unlawful

So yes, filing for bankruptcy can be a nice leverage to collect a claim. Yet another recent case shows that it can also go wrong for the creditor. In October, the Amsterdam court ruled that a creditor had acted unlawfully and abused procedural rights by filing for the bankruptcy of her (alleged) debtor.

In that matter, the court found that bankruptcy filings were not likely to succeed because the debtor was not in the condition of having ceased to pay. That is the criterion a court uses to test whether a company should be declared bankrupt.

The court held that the creditor who filed for bankruptcy knew that the debtor had not stopped paying. This included the fact that the creditor's uncontested claims had been paid. The debtor had disputed some of the creditor's claims and therefore had not paid them. Moreover, that dispute was well motivated. The non-payment therefore stemmed from the fact that the debtor felt that she did not needed pay, not that she did not could pay.

Based on those facts, the court concluded that the creditor needlessly caused costs to the debtor by filing for bankruptcy. Those costs must be reimbursed by the creditor who wrongfully filed for bankruptcy. The debtor's damages consist of the attorney's fees that the debtor reasonably incurred to defend against the (unjustified) bankruptcy filing.

Conclusion: do not use this means of pressure lightly

So the lesson is: if you believe you have a claim, which is disputed with good arguments and therefore not paid, it is better to file an "ordinary" lawsuit. Then you ask the court to rule on the existence of the claim. In such a case, a bankruptcy petition (as a means of pressure) is of no use. If the bankruptcy petition is hopeless beforehand or is based on incorrect facts, as a creditor you may be liable for the debtor's attorney fees.

If you have an undisputed - and due - a "hard" claim, you can perfectly well use bankruptcy as a means of pressure to force payment. At the hearing (if you don't get paid and you push the petition), you will then have to be able to convince the court that the debtor is actually no longer paying.