What to do when a client went out of business and owes you money

Updated 2026-10-24

If a client went out of business owing you money, first find out how it closed: bankruptcy, formal dissolution, an assignment for the benefit of creditors, a sale, or simply going dark. Each has different rules and deadlines. Then look for other sources of payment, such as a personal guarantor, a successor business, a lien or bond claim, or assets that were transferred away. Act quickly, because claims deadlines in closings can be short.

Find out how the business actually closed

Out of business can mean several different things, and the right next step depends on which one applies. Start with three searches: the Secretary of State record for the entity, PACER for any bankruptcy filing, and the debtor's county and state courts for lawsuits, judgments and assignments. A call to the former owner, landlord or a key supplier can fill in the rest.

Common outcomes include a bankruptcy filing, a formal dissolution with a wind-down, an assignment for the benefit of creditors (an out-of-court liquidation under state law), a sale of the business or its assets to a buyer, an administrative dissolution because the company stopped filing reports, or an owner who simply locked the doors and stopped answering.

Write down what you find and when. Save screenshots of the state record, the old website and any closing announcement. Pull together your own file as well: the signed credit application, contract, purchase orders, invoices, proof of delivery and every payment the customer made. Whatever path you take next, from a claim form to a lawsuit, will start with those documents, and some of them get harder to find once a business disappears.

If it filed bankruptcy

Stop collection activity. The automatic stay applies, and your path is to file a proof of claim by the deadline the court sets and look for priority rights such as a §503(b)(9) claim for goods received in the 20 days before filing. A Chapter 7 case is a liquidation run by a trustee, so recovery for unsecured creditors depends on what assets exist. If you have a personal guarantee, the guarantor is usually a separate target, but get advice before acting.

If it dissolved or made an assignment for creditors

Many states have procedures that let a dissolving company notify known creditors and set a deadline to submit claims. If you receive a notice like that, read it carefully and file your claim on time with documentation. Claims that miss the deadline may be barred. If you know the company is winding down and no notice arrives, contact the person handling the wind-down in writing and submit your claim anyway.

An assignment for the benefit of creditors transfers the company's assets to an assignee who sells them and pays creditors in order of priority. The assignee usually sends notice and a claim form. Rules and deadlines vary by state, so treat any notice as time-sensitive.

If it was sold or reopened under a new name

When a business sells its assets, the buyer generally does not take on the seller's debts unless it agreed to. There are exceptions that courts recognize in various forms, such as when the buyer expressly or impliedly assumed the debts, the deal was really a merger, the new company is essentially a continuation of the old one with the same owners and operations, or the sale was set up to escape creditors. Whether any exception applies depends heavily on facts and state law.

If the same owners are running the same business from the same location under a new name, document it: new entity records, website, phone number, staff and customers. That information is valuable to an attorney evaluating a successor liability claim.

Other places money may come from

• Personal guarantee: if an owner signed one, it may be your best path. The guarantor's obligation usually survives the company's closing
• Asset transfers: many states have adopted a version of the Uniform Voidable Transactions Act, which can allow creditors to challenge transfers made to avoid paying debts
• Construction projects: a mechanics lien or a payment bond claim may still be available, but those deadlines run from your last work and are strict
• Freight: a broker's BMC-84 surety bond can be a source of payment for unpaid carriers
• Credit insurance or a letter of credit, if you had one in place
• Unpaid owner capital or improper distributions to owners, which state law sometimes allows creditors to reach

What usually does not work

Owners of a corporation or LLC are generally not personally liable for company debts. Courts can disregard the entity, often called piercing the corporate veil, but that typically requires showing things like commingled funds, ignored formalities or using the entity to commit a fraud or injustice. It is fact-intensive, expensive to prove and not a reliable plan. Going after the owner personally without a guarantee or a strong legal basis rarely pays off.

Decide what is worth pursuing

Before spending money, estimate realistic recovery. A company that closed with no assets, no guarantor and no successor may leave nothing to collect, and you may be better off documenting the loss for tax purposes with your accountant. A company that closed but whose owner signed a guarantee and owns a home, or whose business reopened down the street, is a very different case.

We investigate these situations as part of contingency collections: business status, successor entities, guarantors and asset indicators. If we find a viable path that requires suit, we recommend a local attorney and wait for your approval. If we find nothing, we tell you that plainly so you can close the account.

Frequently asked questions