How to Handle Freight Broker Bankruptcy and Still Recover Payments
How to Handle Freight Broker Bankruptcy and Still Recover Payments
Blog Article
By facilitating communication between shippers and carriers, freight brokers play a significant role in the transportation sector. However, having a freight broker file for bankruptcy and owes you money can put you under a lot of strain, especially if you're a carrier and waiting for unpaid freight bills. Understanding the legal process and the steps involved can help you recover some or all of your owed money.
In this article, we'll explain what to do if a freight broker declares bankruptcy, how to file a claim, and the best tactics for protecting your interests.
1. Understanding Bankruptcy of Freight Brokers
In essence, a freight broker's filing for bankruptcy signifies that they are unable to fulfill their financial obligations to creditors, including shippers and other business partners. They can either liquidate or reorganize their debts through the bankruptcy process. Here are the two most prevalent types of bankruptcy freight brokers:
• Chapter 7 Bankruptcy: The broker's assets are used to pay creditors with the proceeds. In this situation, it's less likely that the debtors will receive their full payment.
• Chapter 11 Bankruptcy: The broker goes through a restructuring that will allow them to consolidate their debts and possibly carry on their business. Although it may be delayed or reduced, creditors may still be receiving payment.
Understanding the type of bankruptcy a freight broker files can help you determine how likely it is to be able to recover your unpaid freight bills.
2..... Important Actions to Take if a Freight Broker Files for Bankruptcy
When a freight broker who owes you money files for bankruptcy, it's important to act quickly. What you need to do is the following:
2.1. Verify the Bankruptcy Reporting.
The first step is to confirm that the broker has actually declared bankruptcy. The Public Access to Court Electronic Records( PACER) system, which contains case and docket details, allows you to check bankruptcy filings. This verification makes sure that the event is legitimate, and that the broker is not using a delay tactic.
2.2. Gather Records
Gather all necessary paperwork related to the unpaid freight invoices. Among these are:
• Payment terms and invoicing
• Proof of service and delivery receipts
• Emails and correspondence between the freight broker and the customer
• Agreements or contracts These documents are essential when bringing a claim in bankruptcy court.
2.3. Obtain a Proof of Claim from a government agency.
You must submit a Proof of Claim with the bankruptcy court once the bankruptcy has been confirmed. The amount of money the broker owes you is specified in a formal statement. To support your claim, be sure to include all supporting documentation.
A Proof of Claim is necessary because it could prevent you from being added to the list of creditors who may be eligible for any payments once the bankruptcy proceedings are settled.
3.... Understanding Your Role as a Creditor
Creditors are typically ranked based on the priority of their claims when a freight broker files for bankruptcy. Knowing where you stand as a creditor and how much of your claim you can recover is important.
3. 1. cured vs. Unsecured Creditors:
• Secured Creditors: These creditors have a legal claim against the bankrupt broker's property and other assets, such as cars and homes. They are typically the first to receive a refund.
Carriers typically fall under this category, unless specific security arrangements were made with the broker. In a Chapter 7 liquidation, unsecured creditors have a lower priority, meaning they may not be paid in full, especially if they are in default.
4. Defining a Bond Claim
In addition to their licensing with the Federal Motor Carrier Safety Administration( FMCSA), freight brokers are required to carry a surety bond or a trust fund agreement. In the event that the broker does n't pay them, the purpose of the bond is to protect carriers and shippers.
You can file a claim against the freight broker's bond if the broker owes you money and has declared bankruptcy. Brokers are required by the FMCSA to maintain a minimum$ 75, 000 bond, which can aid in recovering some of your debts.
To claim a bond, please follow these instructions:
• Get in touch with the surety firm that issued the bond.
• Provide service-related documentation and proof of payment for the unpaid invoices.
• Follow the surety company's instructions for the claim procedure.
Important to remember that bond payouts are constrained, and that the amount will be divided among the creditors if they are owed money by several of them.
5. Negotiating a Settlement
You might be able to bargain with the freight broker's bankruptcy trustee in some cases to reach a settlement. The trustee is in charge of distributing and managing the broker's assets to creditors.
You might be able to come to terms with someone who wants to receive only a portion of the payment or come up with a payment strategy over time. This could be a quicker way to get some compensation than to wait until the bankruptcy process is over, even though you might not be able to recover the entire sum.
6. Using a collection agency
You might want to work with a collection firm with a focus on the freight industry if the bankruptcy process seems overwhelming. Even in complex cases like bankruptcy, collection agencies have experience recovering unpaid freight bills.
The agency will work with you to file lawsuits, reach settlements, and find other ways to get your money back. Keep in mind, though, that collection agencies typically bill a percentage of the money recovered as their fee.
7. Protecting Yourself from Bankruptcies of Future Freight Brokers
There are proactive steps you can take to reduce your risk in the future, even though it's difficult to predict when a broker will file for bankruptcy:
• Conduct Credit Checks: Conduct a credit check to check a freight broker's financial health and payment history before engaging in business relationships with them.
• Observe Payment Patterns: A broker's repeated requests for longer payment terms or delays could indicate cash flow issues. Be cautious if you intend to continue doing business with them.
• Request Payment in Advance: To reduce the risk of non-payment, consider requesting payment upfront or using shorter payment terms for high-value shipments or new clients.
• Use Freight Factoring: Freight factoring enables carriers to sell their invoices to a factoring company, who then takes on the task of collecting payment from the broker. This allows for immediate cash flow and lowers the chance of non-payment as Advance Global Logistics LLC a result of broker bankruptcy.
What is the conclusion?
Dealing with a freight broker's bankruptcy can be stressful, especially if you are owed money for unpaid freight bills. You can increase your chances of recovering some or all of the money you owe by taking action right away, such as verifying the bankruptcy filing, gathering documentation, submitting a Proof of Claim, and pursuing a bond claim. Additionally, proactive measures like credit checks and freight factoring can help you avoid similar situations in the future.
Knowing your legal rights as a creditor and staying informed will help you navigate the bankruptcy process and recover your receivables the best.