My Customer Went Bankrupt—Now, What?

You did your homework and everything checked out. Credit report, financials, customer updates. And then, out of nowhere, they file for bankruptcy. You’re left staring at an unpaid invoice and wondering if you’ll ever see that money again.

It’s a nightmare scenario for any business, especially when you didn't see it coming. But don’t hit the panic button just yet. There are steps you can take to manage the situation and, hopefully, recover some of your funds. Here’s a guide to help you triage the mess and navigate the aftermath.
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1️⃣ Don’t Panic, But Move Fast

Yes, it’s bad news. But acting quickly and strategically can make a big difference. Once your customer files, an automatic stay is triggered, which means:

• You’re legally blocked from chasing payment
• Your claim is now part of a court-supervised process
• And if you miss a deadline, you might get nothing

This doesn’t mean your money is gone forever, it just means you need to move quickly.

What to do next:

• Lawyer up. Bankruptcy law is complex, so having an expert on your side can help you understand your rights and navigate the process.
• Get your timelines in order. Keep track of any deadlines or court filings as they're often tight and critical. Plus, there are no do-overs.
• Gather your customer records. Everything from invoices, contracts, credit apps, and payment history.
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2️⃣ Know Where You Stand: Secured vs. Unsecured

This is the power check. If you’ve got a UCC lien or collateral backing your receivables, you're a secured creditor. And that puts you near the front of the line.

If not? You're standing behind secured creditors, the IRS, employees, and probably the office coffee supplier.

What to do next:

• Review your records. Do you have any security interest (like a lien)?
• If yes: Great. You may have a claim to specific assets or proceeds.
• If not: You’re likely unsecured. Recovery just got a lot more speculative.
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3️⃣ File a Proof of Claim

To recover anything in a bankruptcy case, you have to formally file a Proof of Claim with the court. This document essentially says, “Hey, I’m owed money, and here’s why.” Missing this filing could mean you’re excluded from the bankruptcy estate. Without it, you’re invisible in court.

What to do next:

• File your Proof of Claim before the deadline. Timelines are strict, and missing your window can leave you with nothing.
• Attach documentation. Be detailed when you file. Include all revelevant documentation to back up your claim (invoices, contracts, terms, anything proving the debt).
• Be precise—ambiguity opens the door for your claim to be challenged or rejected.
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4️⃣ Watch for Preference Payments

You may be in for an unpleasant surprise: preference payments. These are payments your customer made to creditors (including you) within 90 days before filing for bankruptcy. If the court finds that these payments were made in an attempt to prefer certain creditors, they could be “clawed back” and returned to the bankruptcy estate.

What to do next:

• Audit all payments from the customer in the 90 days leading up to filing.
• If you were paid “ahead” of other creditors, those payments can be clawed back—even if they were legit.

This can feel unfair, but it's a tactic often used to ensure that the bankruptcy estate is distributed as equitably as possible. Before you do anything—including spend that money—talk with your counsel.
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5️⃣ Plan for the Worst, Hope for the Best

For unsecured creditors, the recovery rate is usually brutal. If that includes you, the chances of getting paid in full are slim. In most cases, if you recover anything, it’s usually just cents on the dollar.

But that doesn’t mean you should throw in the towel. Consider this a lesson to tighten your credit policies moving forward. Use this experience to refine your processes, strengthen your customer vetting, and implement better credit risk management tools to avoid finding yourself in this situation again.

What to do next:

• Refine your process—from credit policies to internal procedures.
• Strengthen your customer vetting and how you assess creditworthiness.
• Implement smarter credit risk tools to catch red flags earlier.
• Stop history from repeating itself. Use this experience to build a more resilient credit strategy
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6️⃣ Don’t Wing It—Document Your Playbook

Let’s be real: you might get hit with another bankruptcy. But next time, it shouldn’t feel like a fire drill.

Avoid the chaos. Create and share a clear bankruptcy response plan across Legal, Credit, Sales, Deal Desk, Billing, and AR. When everyone knows the play, you move faster—and smarter.

What to do next:

• Document your process. Who’s responsible? What are the first steps? What systems need to be updated?
• Share it cross-functionally. Everyone should know the drill before the next filing hits your inbox.
• Turn chaos into coordination. A solid process means faster action... and better odds of recovery.

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💸 Bonus Tip: Shop Your Bankruptcy Claim

Here’s something you might not have considered: you may be able to sell your bankruptcy claim.

Yep—there’s an entire market for this. Hedge funds and debt buyers often purchase creditor claims for a percentage of face value, gambling that they’ll recover more during proceedings.

If you’re looking at cents on the dollar (or nothing), selling your claim might be your best shot at immediate cash.

What to do next:

• Make sure your Proof of Claim is solid. It needs to be filed, accurate, and well-documented. No buyer touches a messy claim.
• Find a buyer. Distressed debt firms and hedge funds buy claims—check platforms like Xclaim or ClaimTrader.
• Negotiate. Offers typically land between 10¢–60¢ depending on claim size, payment likelihood, and priority
• Close the deal. Sign a claim transfer agreement. Buyer files with the court. You get paid—they take the risk.
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The Best Defense? Prevention.

Rather than waiting until a bankruptcy notice hits your inbox, leverage AI-driven credit monitoring tools (like what we do at Credit Pulse) to spot early warning signs and manage credit risk proactively.

• Monitor financial health in real time: Spot shifts in customer behavior before they turn into serious issues.
• Make informed credit decisions: AI tools can analyze massive datasets and predict the likelihood of financial trouble before it’s too late.

With real-time insights and AI on your side, you can stop reacting and start preventing. Credit risk doesn’t have to be a guessing game. Let’s trade surprises for smart calls.

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