How to Recover Freight Payments When a Broker Files for Bankruptcy
How to Recover Freight Payments When a Broker Files for Bankruptcy
Blog Article
By facilitating communication between shippers and carriers, freight brokers have a significant role in the transportation sector. However, if a freight broker declares bankruptcy and is owed money to you, it can put you under a lot of financial strain, especially if you're a carrier and are 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 ways to protect your interests.
1. Understanding Bankruptcy Among Freight Brokers
In essence, a freight broker's filing for bankruptcy means they are unable to fulfill their financial obligations to creditors, including shippers and other business partners. They can either liquidate their assets or reorganize their debts as a result of the bankruptcy process. Here are the two most prevalent types of bankruptcy freight brokers:
• Chapter 7 Bankruptcy: The broker's assets are liquidated and the money used to pay its debtors. 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.
Knowing what kind of bankruptcy a freight broker files can tell you how likely it is 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 as follows:
2. 1. Verify the Bankruptcy Reporting.
The first step is to confirm that the broker has filed for bankruptcy. The Public Access to Court Electronic Records( PACER) system, which provides case and docket details, allows you to check bankruptcy filings. This verification makes sure that the event is legitimate and that the broker is using a delay tactic.
2. 2. Gather Records
Gather all necessary paperwork to support the unpaid freight invoices. Among these is:
• Payment terms and invoicing
• Proof of service and delivery receipts
• Emails and records of communication with the freight broker
• Contracts or agreements These are important when bringing a claim in bankruptcy court.
2. 3. Obtain a Proof of Claim.
You must file a Proof of Claim with the bankruptcy court once the bankruptcy has been confirmed. The amount of money the broker owes you is stated in a formal statement. To support your claim, be sure to include all supporting documentation.
It is crucial to file a Proof of Claim 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 crucial.
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 typically come in first for repayment.
• Unsecured Creditors: Carriers typically fall under this umbrella, unless a specific security agreement was reached with the broker. In a Chapter 7 liquidation, unsecured creditors have a lower priority, meaning they may not be paid in full, especially if the debt is secured.
4.... Creating a Bond Claim
As part of their licensing application 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 the carriers and shippers.
You can file a claim against the freight broker's bond if the broker owes you money and has filed for 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 a copy of the service agreement and proof of payment.
• Follow the claim procedures as defined by the surety company.
Important to remember that bond payouts are constrained, and that the amount will be divided among the creditors if they are owed money by Advance Global Logistics LLC 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 managing the broker's assets and giving them to the 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 plan gradually. 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 amount.
6. using a collection agency
You might want to work with a collection firm with a focus on the freight industry if trying to navigate the bankruptcy process seems overwhelming. Even in challenging circumstances 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 companies 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 challenging 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 entering into a business relationship.
• Track Payment Patterns: A broker's repeated requests for longer payment terms or delays may 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 lessens the chance of non-payment as a result of broker bankruptcy.
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 circumstances 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.