Usually, businesses have claims against other businesses.  Still, you may occasionally have a claim against an individual and it’s good to know what can happen in that situation. 

The "no asset" case. Unfortunately, most individuals who file bankruptcy, especially those who file the more common Chapter 7 liquidation case, do not have any significant assets that can be sold to pay creditors.  What’s more, the assets they do have — such as IRAs, 401(k) accounts, etc. — are usually exempt from creditors’ claims.  Cases in which no non-exempt assets are available to pay creditors are known as "no asset" cases.  (Bankruptcy lawyers love imaginative names.)  In a no asset case, the bankruptcy court’s notice will actually instruct you not to file a proof of claim unless later notified to do so. 

The "asset" case.  Sometimes there are enough non-exempt assets to produce at least some distribution to unsecured creditors.  While not very common in Chapter 7 cases, it could be that the individual has filed a Chapter 13 "wage-earner" case or a Chapter 11 personal reorganization case and expects to pay creditors some amount over time.  If so, a claims filing deadline known as a "bar date" will be set.  If you file a proof of claim form by the bar date, you may eventually receive a check, although typically this will be months or even years after the bankruptcy was filed.  In most cases involving individuals, the distribution to unsecured creditors is painfully small.

The bankruptcy discharge. In general, when individuals file bankruptcy, they will get discharged, or excused, from their pre-filing debts.  This is especially true in Chapter 7 and 11 cases and also in Chapter 13 cases if the individual debtor makes all of the payments required under his or her plan.  The discharge is part of what is often referred to as the "fresh start" that bankruptcy offers. 

Nondischargeable debts. Although recent changes to the bankruptcy laws have made it harder for individuals to file bankruptcy and get a discharge, many people are still able to do so.  That said, the law does call out certain kinds of debts and makes them "nondischargeable," meaning that they can be excluded from the scope of the bankruptcy discharge. These include debts arising from the debtor’s fraud or other intentional bad acts, including when he or she obtained credit, and also to obligations for alimony, child support, student loans, and many taxes.  (So it’s clear, the concept of a debt being nondischargeable applies only to individuals, not to corporations or other business entities.) 

Action is required. With rare exceptions, if you are owed one of these nondischargeable debts, the bankruptcy law forces you to take prompt action to preserve your rights — or the debt will be discharged anyway.  To stop an individual debtor from getting a discharge of such a debt, you must sue the debtor in his or her bankruptcy case for a declaration that your debt is nondischargeable. If the bankruptcy court declares the debt nondischargeable, it will not be discharged by the bankruptcy and you would have the right to attempt to collect the debt outside of bankruptcy.  

Be careful of deadlines. There are strict deadlines for filing such "nondischargeability" actions. Although the bankruptcy court should notify you of these deadlines, the burden is on you to figure out when the deadline will pass and to file a lawsuit before the deadline.  Usually, the deadline is 60 days after the first date scheduled for the official meeting of creditors listed on the bankruptcy court’s notice of the case (whether or not the meeting takes place as scheduled), but you should be certain to confirm the precise deadline in the debtor’s case.  This is critical because if you fail to file your complaint before the deadline, the debtor’s discharge will cover your debt too. 

Call a bankruptcy attorney. It probably goes without saying, but if you believe your debt against an individual debtor might be nondischargeable, contact a bankruptcy attorney immediately upon learning of the debtor’s bankruptcy filing.  Of course, bringing the required lawsuit costs money.  Unless you think the debtor will be able to pay back your debt from his or her post-bankruptcy earnings, you may decide that it doesn’t make economic sense to get the debt declared nondischargeable.