How do collection assets flow through a Chapter 11 Bankruptcy?

[Determined1]

A large company is trying to collect against my company for an alleged debt.

Here's the basics of the entities trying to collect:

Company #1 - Chapter 11 Bankruptcy, sells remaining assets to company #2

Company #2 - Chapter 11 Bankruptcy, sells remaining assets to company #3

Company #3 - tries to collect.

Are there certain rules that govern their ability to collect in a scenario like this?

Must they have taken some legal action along the way (i.e. declaring my account as an asset in their bankruptcy proceedings?)

[WhoCares1000]

In most Chapter 11's, the company itself gets to keep control of the assets (the only time a trustee is appointed is if there is worry that the Chapter 11 will convert to a Chapter 7 or if it should). The company probably simply sold the debt to raise the capital needed to get out of Chapter 11.

Simply follow the usual rules of debt validation, Cease and Desist, and in the case of court, discovery. No different just because one of the persons who "owned" the debt at one time declared BK.

[Determined1]

And company after company can trade the alleged account, filing Chapter 11 after Chapter 11 after Chapter 11, escaping billions in debt, and still attempt to collect? What if Chapter 7's were also involved?

Edited September 15, 2010 by Determined2

[jq26]

Yes. Your loan is an asset. In a Chapter 11, all assets are sold for the benefit of creditors and the remaining debt is extinguished because there is nothing left. Creditors, bondholders, and shareholders of the corporation share in losses (dispropoortionately based on priority). They didn't "escape" any debt. All parties in interest took a REAL loss on their investment which is a risk of doing business.

Your asset was sold to someone else for value. It is as valid as is was in the hands of corp #1.

[WhoCares1000]

These companies are not doing anything under law that you cannot do (other than the fact that they can reorganize their debts rather than have to liquidate their assets). You too can file Chapter 7 and extinguish the debt that company #3 now has as an asset.

That is what BK is all about in this country. Your assets are sold off to pay your creditors and then anything left over is discharged. Nothing crooked here.

[jq26]

A Chapter 13 for an individual debtor is the economic equivalent to a Chapter 11 for a business entity. Secured creditors still retain their liens, unsecured take a haircut, and virtually all income for a period of time is used towards reorganization purposes.

So you have the same rights as any business.

[Determined1]

Does the entity that goes into Chapter 11 have to list or declare the account it wishes to collect on to the court, a trustee, in writing at the time of its bankruptcy filing to the alleged debtor, or in other any specific form?

[jq26]

Your debt was probably a small part of a larger pool of assets. No bk court would ever require millions of account #s to be listed in schedules.

[Determined1]

Thanks JQ. Part of what I'm getting at is there were about 6 mergers, and 3 bankruptcies along the way. Would they be required to notify my company about the disputed debt?

[jq26]

No. They would not. You were not a party in interest.