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Bankruptcy Basics

It seems that at least once a week, a bankruptcy question comes up in one of the dealer/creditor social media groups that we follow.  The questions usually involve either selling a vehicle to someone that has filed bankruptcy, or repossessing a vehicle from a bankruptcy debtor.  Unfortunately, what usually follows the question are a bunch of anecdotal comments, some good, some not so good, and the person posting the question has to play "Russian Roulette" when deciding which advice to follow.  

This is a Tip of the Week, not an advanced class on Bankruptcy, so we're not going to try to delve into the numerous fact patterns that may present themselves or try to anticipate every question.  Instead, we're providing four very basic pieces of advice to better prepare our friends and clients when it comes to these issues:

What is the Automatic Stay?

First, it's imperative to understand that the "automatic stay" protects the debtor and its property as soon as the bankruptcy case is filed.  Think of it as a magic shroud that offers impenetrable protection.  You don't want to violate the automatic stay, that can get expensive in a hurry.  Much of the advice we read in these social media comments ignores the fact that only the court can lift the automatic stay, you can't just take matters into your own hands, no matter how egregious the actions of the debtor.

Subscribe to Pacer

Secondly, every creditor should have a subscription to Pacer, which is a government website that tracks all open federal cases.  This enables you to check on the status of a case by simply putting in a name or file number.  Having access to this information is invaluable, and it doesn't cost a thing unless you print more than so many documents a month.

Have a Creditor's Rights Attorney

Thirdly, every debtor should establish a relationship with a creditor's rights attorney.  The Federal Bankruptcy Code is subject to interpretation by individual judges.  For instance, when I used to handle bankruptcy cases in Dallas, there were three judges, and they handled issues like "cram down", "valuation", and other matters somewhat differently, so it was always important to understand the personal preferences of the judge.  There's also something called "local rules", and even "local, local rules" (no, I'm not making this up) and these have to be considered when deciding on a course of action.  

Trustees and Debtor's Counsel

Lastly, understand that the debtor's attorney isn't the only adversary you may have in a bankruptcy case.  Upon filing, a Trustee is appointed, and its job is to marshal the assets of the debtor and protect the estate.  Sometimes this can put the Trustee at odds with a creditor.  The Trustee can play a big role in how the case proceeds, so it's important to factor them into your analysis.


When it comes to bankruptcy issues, practicing "Internet Law" can be costly.  Plenty of social media commentators mean well, but they may not be intimately familiar with the code, know the right questions to ask, or understand the impact that a local bankruptcy judge or trustee can play.  While Ignite doesn't represent clients in bankruptcy matters, we are a good source of knowledge on the "do's and don'ts" and can help guide clients to the right analysis and resources.  Please reach out to to learn more.  If you are on our Training Unleashed Learning platform, we have a Bankruptcy Class that is a great source of information for those folks in your organization that are responsible for handling bankruptcy matters.  

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