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Final Chapter

Chapter 7, Chapter 11-your customer's gone bankrupt? Here's what to do.

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This story appears in the April 2000 issue of Entrepreneur. Subscribe »

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."

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