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Final Chapter

Chapter 7, Chapter 11-your customer's gone bankrupt? Here's what to do.
April 1, 2000
URL: http://www.entrepreneur.com/article/24856

It's the legal notice every business owner dreads: A customer that owes you money has filed for bankruptcy. Before you start to panic, here's the lowdown on what to do and what fallout you can expect:

First, stop all collection activities. "The automatic stay [essentially a federal injunction that prohibits collection efforts while the case is pending] descends like an iron curtain and operates as an absolute bar on further collection activities," says David Gamache, an attorney at Newman, Freyman, Klein & Gamache PC in St. Louis. "If the matter has been placed for collection, the attorney or agency should be notified immediately by telephone and with a follow-up copy of the bankruptcy notice."

Next, read the bankruptcy notice carefully. Gamache advises taking note of important dates, such as the claims bar date, which is the deadline by which a proof of claim must be filed for a creditor to share in any distribution of funds; the date of the creditors' meeting, which is also called a "341" meeting; and the deadline for filing a nondischargeability action, a petition to the court that the debt you are owed not be discharged in the bankruptcy. Also, note the trustee and the location of the bankruptcy court.

"The claims bar date is particularly important, as failure to file a claim with the appropriate bankruptcy court in a timely fashion likely eliminates any chance of recovery," Gamache says. "The name and address of the trustee and of the bankruptcy court should be on the initial notice. Although the trustee cannot give legal advice, he or she can in many cases answer routine questions related to the status of the case, asset recovery and important deadlines. Claims forms can be obtained from the court."

If you're unfamiliar with bankruptcy proceedings, Gamache suggests, consult with a bankruptcy attorney to make sure you fully understand your options and can decide on the best course of action. Don't just assume you'll never collect what's owed you. While that may happen, keep in mind that many companies emerge from bankruptcy stronger than before and able to pay their bills, and many companies that are liquidated are able to pay creditors at least a portion of their debts.


Jacquelyn Lynn left the corporate world more than 13 years ago and has been writing about business and management from her home office in Winter Park, Florida, ever since.

Contact Source

Newman, Freyman, Klein & Gamache PC, (314) 727-0220, DavidGamache@nfk-law.com