In an environment where the revenue picture is blurry, 20/20 hindsight on delinquent bills can overtake your vision. In times like these, the cash lost to people who haven’t paid up on your invoice is too much pain to bear. Hence, it is a common for debt collection and lawsuits to increase in a downturn.
But the debtors are not without legal tools. In fact, if they aren’t afraid of the “B” word, they can lock their creditors out. The B word is none other than bankruptcy. And when a debtor company hits the B button (which in fairness may be a legitimate maneuver), the “automatic stay” can literally erase your lawsuit for unpaid bills.
In fact the “protection” in “bankruptcy protection” usually refers to the automatic stay, which comes into play the moment the bankruptcy filing is made.
As with all things legal, the automatic stay is not without ways to poke holes. Creditors can ask the bankruptcy court to allow a lawsuit to continue. However, more often than not these requests are denied. So when chasing down that someone who hasn’t paid their bills, one should factor the debtor’s financial state and the possibility that a bankruptcy filing may be on the horizon into the financial calculus of a lawsuit.