When a business customer files bankruptcy, the automatic stay stops all collection immediately. Creditors should file a proof of claim by the court's deadline to share in any distribution, and suppliers of goods delivered shortly before the filing may have priority rights. We file and monitor the claim for you.
What to do first
- Stop all collection contact with the debtor
- Gather invoices, delivery proof and the account statement
- Note any goods delivered in the 20 days before the filing
- Calendar the claims bar date
Chapter 7 vs. Chapter 11
In a Chapter 7 case the business is liquidated. A trustee takes control, sells whatever assets exist and distributes the proceeds by priority. Secured lenders and priority claims come first, and general unsecured creditors often receive little or nothing. In many business Chapter 7 cases the first notice tells creditors not to file a claim yet because no assets are expected; if the trustee later finds assets, the court sends a new notice with a deadline.
In Chapter 11 the business usually keeps operating under its current management as a debtor in possession and proposes a plan to restructure its debts. Unsecured creditors may receive a percentage of their claims over time, and they vote on the plan. Small businesses may use Subchapter V, a faster form of Chapter 11. A creditor listed in the debtor's schedules as owed an undisputed, fixed amount may be treated as having filed a claim in Chapter 11, but filing your own claim is the safer course.
Bar dates and the proof of claim
The claims bar date is the deadline to file a proof of claim, and a late claim can be disallowed or paid last. In Chapter 7 the general deadline is 70 days after the petition date when a claims deadline applies. In Chapter 11 the court sets the bar date, often in a separate order, and it can be earlier than creditors expect.
A proof of claim is filed on Official Form 410 with the bankruptcy court, along with supporting documents such as invoices, the account statement and your signed terms. We prepare and file it, track the case docket and objections to claims, and tell you when distributions are expected.
Priority for goods: 503(b)(9) and reclamation
Suppliers of goods get some special protection. Under 11 U.S.C. 503(b)(9), the value of goods the debtor received in the ordinary course of business within 20 days before the bankruptcy filing can be an administrative expense claim, which is paid ahead of general unsecured claims. It applies to goods, not services, so delivery dates matter.
A seller may also have reclamation rights under 11 U.S.C. 546(c) for goods received by an insolvent debtor within 45 days before the filing, but only with a timely written demand, and those rights are often limited by secured lenders. Both claims are time-sensitive, so send delivery records as soon as you learn of the filing.
Preference claims: when the trustee asks for money back
A trustee or debtor in possession can sometimes recover payments a creditor received in the 90 days before the filing, or one year for insiders, on the theory that the creditor was paid ahead of others. These are called preference claims under 11 U.S.C. 547. Creditors have defenses, including that payments were made in the ordinary course of business and that the creditor later shipped new goods or services on credit. If you receive a preference demand, do not pay it without review. We can refer you to bankruptcy counsel.
Frequently asked questions
Can I still collect from a guarantor?
Often yes. The automatic stay generally protects the debtor company, not a personal guarantor, but get advice before contacting anyone.
What happens if I keep collecting after a customer files bankruptcy?
The automatic stay under 11 U.S.C. 362 prohibits most collection actions against the debtor once a case is filed, and a willful violation can lead to sanctions. Stop calls, letters, lawsuits and setoffs, and let us handle the claim.
Should I keep selling to a customer in Chapter 11?
Many suppliers do, usually on cash in advance or very short terms. Sales made after the filing are generally treated as administrative expenses, which have priority over pre-bankruptcy debts. Some debtors also ask the court for permission to pay key suppliers' old balances in exchange for continued supply.
Related services
- Commercial collections
- Pre-collection letters
- Legal collections
- Judgment enforcement
- International collections
- Skip tracing
- Lien & bond claims
Industries we serve
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