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Your Client Received Notice of a Bankruptcy Filing. Now What?

The Bencher—September/October 2021

By Amelia Martin Adams, Esquire

It’s late afternoon and your phone rings. A client’s longtime customer filed bankruptcy, and the client needs advice about protecting its interests during the case. In this challenging economic climate, the likelihood that bankruptcy will impact the practice of “non-bankruptcy” lawyers is increasing. Bankruptcy cases—especially business cases—can come in like a lion and move extraordinarily quickly, so having a familiarity with the system before a case crosses your desk is invaluable. This article offers insights into steps counsel should consider after receiving an initial call from a creditor client concerned about a bankruptcy.

Step One: Familiarize Yourself with the U.S. Bankruptcy System.

The Courts. As with any new area of law, it is critical to understand the basic structure of the court before wading into deeper waters. U.S. bankruptcy judges preside over nearly all bankruptcy matters. By authorization in the U.S. Constitution, Congress gave U.S. district courts jurisdiction over all cases under, arising in, and related to the U.S. Bankruptcy Code. See U.S. Const., art. I, § 8, cl. 4; 28 U.S.C. § 1334. In practice, District Courts “refer” bankruptcy matters to the U.S. bankruptcy courts in their districts by enacting a local rule or entering a standing order. See 28 U.S.C. § 157(a). Although district courts may “withdraw the reference” of a matter “for cause shown,” that rarely occurs. See 28 U.S.C. § 157(d).

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