When it comes to corporate debt collection, state and federal law can sometimes have separate implications to a commercial creditor. The following is in response to the question: If someone bounces a check to a commercial business then files Chapter 11 bankruptcy, do we have any recourse?
Not under federal law because creditors usually elect not to go through the expense of challenging it.
However, bankruptcy does not prevent the creditor from trying to get the State Attorney’s Office to threaten prosecution to force restitution on the NSF checks. If the prosecution is by a District Attorney, Attorney General, or any law enforcement authority of the State for a criminal action, then it will not stop prosecution for a bad check.
When your debtor files a bankruptcy case, there is a stay against any attempts to collect a debt from them. When a bankruptcy petition is filed, Bankruptcy Law imposes “the automatic stay” which is an injunction on all collection actions and which prohibit further collection efforts on debts that came about prior to the bankruptcy filing. This “automatic stay” is one of the primary reasons many people file for bankruptcy.
Although the “automatic stay” is a very powerful part of Federal Bankruptcy Law, the “automatic stay” does not extend to proceedings by the State or any Federal governmental agency pursuant to its police powers. More specifically, any criminal prosecutions which enforce criminal laws are not subject to the automatic stay of bankruptcy.
The Bankruptcy Court treats prosecutions of bad checks as criminal proceedings and not attempts to collect debt as long as the actual purpose of a bad check prosecution is to enforce criminal bad check laws. Since a bad check prosecution isn’t meant to pressure the debtor into paying a debt that could otherwise be discharged in a bankruptcy the automatic stay of bankruptcy will have no effect on bad check prosecutions which enforce criminal law.
You could pursue collection of the bad check through the DAs office directly or attorney general in the jurisdiction of the debtor.
For more on bad checks, including an excellent bad check letter and what to do if you receive a bad check, check the Stevens & Ricci Resource Center.
