Going To Court: Collecting From A Customer Who Has Gone Bankrupt

In many of our most recent articles we’ve discussed best practices in how to manage your accounts receivables so as to avoid potential collections woes. It’s possible, though, that after diligently sending letters, making calls, and perhaps even hiring a collections attorney, there may be that one customer who never responds and never pays. And in some cases a non-paying customer may go bankrupt. What do you do then?

The first thing you need to realize is that it is entirely possible to get money owed to you from a bankrupt customer, even if it is only a portion of the total due. However, what you must consider is whether it is worth your time and money to recover money owed in the case of a bankruptcy, especially if you’ve already expended significant resources in collections efforts. It’s important to understand the bankruptcy process. Here are some tips…

Comply with the court ordered “automatic stay”

This means you have to cease collections efforts with this customer. Mark their account as “filed for bankruptcy” and then decide if moving forward in court is the right thing for you to do.

Do your research, be involved

Firstly, examine the bankruptcy papers. You might find something other creditor’s missed, such as more money than you customer is confessing to. Secondly, attend a creditors meeting. This is where you get to ask your bankrupt customer questions about their assets, income, expenses, etc.

File a proof of claim

This is your declaration to the court that your customer owes you money. Include evidence such as contracts, notes, etc. If you don’t file a proof of claim then you can lose your opportunity to get any money from the bankruptcy proceeds.

Attend Chapter 11 or Chapter 13 hearings

If the debtor filed for Chapter 11 reorganization, you may choose to propose a reorganization (and repayment) plan, and then have an opportunity to vote on which proposed plan gets adopted. If Chapter 13 reorganization, the court decides whether the debtor’s proposed repayment plan should be confirmed, to which you can submit objections

The Jayaram Law routinely and successfully assists its clients in their business-to-business (b2b) collection needs.  We take pride in obtaining payment on accounts receivables without fracturing critical business relationships or engaging in time-consuming and costly litigation efforts.


If you need business debt collection services conducted in a professional manner, contact our B2B (business-to-business) debt collection law firm by calling 312.454.2859 or visiting www.jayaramlaw.com.