One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sun with newsworthy business leaders. Joel I. Sher is a partner with the law firm of Shapiro and Olander and concentrates on bankruptcy. He also serves on the U.S. Trustee panel, which includes attorneys appointed by the court to administer Chapter 7 bankruptcy cases.
Q. These are tough economic times. More businesses such as stores, dealerships and contractors are filing for bankruptcy and a consumer can get caught in the middle. Are there any precautions consumers should take to help prevent themselves from becoming creditors to the businesses and service companies they use?
A. Most consumers end up becoming creditors by way of layaway sales. The key really is to try financing from other than the retail outlet. For instance, if you go into a layaway situation, there is no requirement for escrow, and while it may look attractive not to pay higher interest rates, you have a greater risk. And the only way to prevent yourself from being a creditor is to get what you're paying for right away. In terms of consumer purchases again, try to minimize deposits pending purchases. Try to get your purchases up front.
Q. What rights do consumers have when a company files for bankruptcy?
A. If someone goes out of business, creditors can file a claim, so that if there's ever a distribution made out of the bankruptcy proceeding, they should and must file a claim to participate. Secondly, certain types of claims are given priority in distribution. For instance, if you have a layaway contract and you put down up to $900 you'll have a priority claim. You really should mark on your claim that it's a priority claim so that when a trustee in bankruptcy goes through it later to make distribution he realizes that it's a priority.
Q. Does that also include down payments?
A. You get a priority claim for up to $900 and it's for any deposit in connection with the purchase, lease or rental of property. Secondly, if you are an employee of the business that goes under -- that's what really happens more often -- then you have a priority claim for up to $2,000 for any wages earned within 90 days of the filing of the bankruptcy case. Similarly that extends to any severance pay, benefits, vacation pay, and other types of employee benefit plan. So, if you fall into those categories you really should file a claim and you should mark on it that it's a priority.
Q. If a company files for bankruptcy and doesn't list an employee or consumer as a creditor, do they have to let the courts know?
A. Yes, it's up to you. In most of these larger bankruptcies the number of creditors is so large that a lot of times people are unintentionally overlooked. So it's up to you to go file a claim. And it's up to you to make an inquiry as to where your goods are. The first thing you should do if a business files for Chapter 11 is call the business and find out what procedure they are implementing in regard to honoring prior layaway purchases. Second, if you don't get satisfaction, I really do urge people to call the attorney general's office, Consumer Protection Division. They've really been active in cases over the last couple of years. A couple of the retail stores went into bankruptcy recently and the attorney general's office got active. One voice, one little consumer with a $500 purchase, is not going to get the attention that Consumer Protection Division is going to get if they have a number of these people. A lot of people just get frustrated and don't do anything, but they shouldn't.
Q. If a consumer finds himself or herself part of a bankruptcy petition, what steps should he or she take?
A. If you are on the petition, you will be mailed all the notices of major events in the case. You'll probably get inundated with a lot of notices of anything done out of the ordinary course of business. You'll get notification of any major event which occurs in the case, although what unfortunately happens is most people are confused by the notices because it's written in legal [jargon]. I would suggest that people attend the first meeting of creditors. In every bankruptcy case there is a creditors meeting. It's held usually within the first 60 days of the filing. Go to that meeting. It's open to the public and you have the right to question the data.
Q. As the economy gets worse, will consumers have to do more legwork to check out who they are buying from?
A. The answer to that is, who has time? If you want to go out and buy a TV, you're going to buy a TV. And you're going to buy it where you get the best price. . . . You can call the Consumer Protection Division. They keep a listing of complaints filed by consumers. I think mostly, you've got to use your gut.