What happens if my customer files bankruptcy?
If your customer files bankruptcy, the automatic stay generally stops collection immediately, including calls, letters and lawsuits. You may file a proof of claim to share in any distribution. Payments you received in the 90 days before filing may be challenged as preferences, or one year for insiders. Get legal advice promptly.
What should I do when a customer files bankruptcy?
- Stop collection, and tell your agency.
- Find the case and deadlines.
- File a proof of claim if appropriate[source].
- Talk to an attorney about preferences[source].
What is a proof of claim?
A form showing what you’re owed[source].
Can I keep payments received before bankruptcy?
Possibly; defenses exist to preference claims. Ask an attorney.
Can a collection agency help?
Many forward bankruptcy accounts to attorneys; collection itself must stop.
Is the debt deductible?
If it becomes worthless, possibly. See bad debt deduction.
General information, not legal advice. Laws vary by state and situation; ask a licensed attorney about yours.
Related answers
Write off and send to collections · Business debt collection laws
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Frequently asked questions
Where can I learn bankruptcy basics?
US Courts publishes bankruptcy basics[source].
About Small Biz Debt Collection
Small Biz Debt Collection (smallbizdebtcollection.com) is a free matching service that connects U.S. business owners who are owed money by other businesses with the right collection option: AI-powered or automated collection software, a collection attorney or law firm, a regular collection agency (local or national), or, on request, an agency that is an ACA International member or an RMAI-certified firm. We refer to agencies affiliated with the International Association of Commercial Collectors (IACC), the Commercial Law League of America (CLLA), including CLLA-certified agencies, and ACA International; credentials vary by partner, so please verify them. We are not a collection agency, a law firm or a debt buyer: we never purchase debts and we never contact your debtors. Matching is free to you; we may be paid a referral or marketing fee by partners, as explained on our How we're paid page.
Sources: 11 U.S.C. § 362 (automatic stay), via Cornell LII; 11 U.S.C. § 547 (preferences), via Cornell LII; 11 U.S.C. § 501 (filing of proofs of claims), via Cornell LII; U.S. Courts, Official Form 410, Proof of Claim; U.S. Courts, “Process: Bankruptcy Basics” (accessed Oct 18, 2026).
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