My Customer Went Bankrupt. Now What?

You did your homework. You pulled the credit report, reviewed the financials, and got customer updates. Everything looked solid. Then out of nowhere, your customer files for bankruptcy. Suddenly you are staring at unpaid invoices and asking yourself: Will I ever see that money again?

It is one of the most difficult scenarios in B2B credit. The good news is there are steps you can take to protect your position and even recover some of what you are owed. Here is the playbook.

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Step 1: Do Not Panic, But Move Quickly

Bankruptcy is bad news, but speed and strategy make a big difference. Once a filing happens, an automatic stay is triggered. That means:

• You are legally blocked from chasing payment
• Your claim becomes part of a court-supervised process
• If you miss deadlines, you may recover nothing

What to do:

• Hire legal counsel experienced in bankruptcy cases
• Gather customer records including contracts, invoices, applications, and payment history
• Track deadlines and court filings immediately because there are no second chances

Pro Tip: Think of this as financial triage. The creditors who act first usually recover more than those who delay.

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Step 2: Know Where You Stand

Not all creditors are treated equally. Where you stand depends on whether you are secured or unsecured.

• Secured creditors: Have collateral or liens such as a UCC filing, giving them a claim to specific assets
• Unsecured creditors: Have no collateral and must wait behind secured parties, tax authorities, and employees

Understanding your position helps you set expectations for recovery and prioritize next steps.

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Step 3: File a Proof of Claim

If you do not file, you do not exist in the eyes of the court. A Proof of Claim documents the amount owed and why.

What to do:

• File before the court deadline because late claims are often excluded
• Attach supporting documents including contracts, invoices, and terms
• Double-check for accuracy because vague claims can be challenged or rejected

Fact: Many unsecured creditors who fail to file a Proof of Claim recover zero, even when distributions are made.

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Step 4: Watch for Preference Payments

Payments you received in the 90 days before the bankruptcy filing can be clawed back by the court. These are called preference payments.

What to do:

• Audit all payments in the 90 days leading up to the filing
• Be prepared for the court to request repayment even if the payments were legitimate
• Consult your attorney to see if defenses apply, such as proving the payments were made in the ordinary course of business

This feels unfair, but it is a common tactic to ensure equal treatment across creditors.

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Step 5: Plan for the Worst and Hope for the Best

For unsecured creditors, recovery rates are often measured in cents on the dollar. In many cases, you may receive nothing. Secured creditors fare better, but even they may face partial or delayed recovery.

What to do:

• Adjust your expectations early so you can make better financial decisions
• Treat this as a lesson to refine your credit policies and monitoring
• Use the experience to strengthen how you vet customers before extending terms

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Step 6: Build a Bankruptcy Response Playbook

If bankruptcy filings always feel like chaos, it means you need a documented plan.

Why it matters:

• Having a clear process turns panic into coordinated action
• Teams move faster when they know their role ahead of time
• A playbook reduces the chance of missing deadlines or mishandling claims

What to do:

• Document who owns the first step and what systems need updating
• Share the process across Legal, Credit, Sales, Billing, and AR
• Train staff so everyone knows what to do when the next filing notice arrives

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Bonus Strategy: Sell Your Bankruptcy Claim

You are not stuck waiting years for the court to distribute cents on the dollar. There is a market for bankruptcy claims. Hedge funds and debt buyers purchase claims at a discount in exchange for taking on the risk.

How it works:

• File a clean Proof of Claim because buyers will not touch incomplete filings
• Find buyers through distressed debt firms or platforms like Xclaim or ClaimTrader
• Expect offers between 10 and 60 cents on the dollar depending on claim size, recovery odds, and your position
• Sign a transfer agreement, the buyer files with the court, and you walk away with immediate cash

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The Best Defense Is Prevention

The only thing better than handling a bankruptcy well is avoiding the surprise in the first place. That is where proactive monitoring matters.

With AI-driven credit risk tools like Credit Pulse, you can:

• Monitor customer financial health in real time
• Spot early warning signs such as slow payments, liens, or leadership changes
• Adjust terms before trouble escalates
• Rely on fraud-resistant credit applications to block risky accounts at the start

Prevention reduces exposure and turns credit from reactive firefighting into strategic risk management.

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Final Thoughts

Bankruptcy is one of the hardest scenarios in credit, but it does not have to wipe you out. By moving quickly, filing claims properly, preparing for clawbacks, and considering claim sales, you can preserve your position.

Even more importantly, every bankruptcy is a reminder to strengthen your credit process. With fraud-resistant credit applications and AI-powered monitoring from Credit Pulse, you can stay ahead of risk and avoid being blindsided again.

Bottom line: Bankruptcy will happen in B2B. The only question is whether you are prepared.

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FAQ: Bankruptcy in B2B Credit

What is the first step when a customer files for bankruptcy?
Hire legal counsel, gather all records, and file your Proof of Claim before the deadline.

What are preference payments?
Payments made within 90 days before filing that may be clawed back by the court.

Can I sell my bankruptcy claim?
Yes. You can sell claims to distressed debt buyers for immediate cash, usually at a discount.

How can I prevent being blindsided by bankruptcy?
Use proactive monitoring tools like Credit Pulse to spot red flags and adjust terms before a filing happens.