NASE Blogs

Can I still recover my money after my client has filed for bankruptcy?

Apr 04, 2009

Q: One of my customers owes me several hundred dollars and is telling me he filed bankruptcy. Is there anything I can do to get my money?

A: If you haven't received a notice from the Federal Bankruptcy Court, verify the filing by calling the bankruptcy court in the customer's city. If your customer was incorporated, the bankruptcy will be under the corporate name. Sole propretors would file under the owner's name with a DBA in the business name.

Find out if the filing was made under a Chapter 11 (business reorganization), Chapter 13 (personal reorganization) or Chapter 7 (liquidation).

Once a bankruptcy is filed, there isn't a great deal you can do. It takes a few weeks for you to receive notice from the bankruptcy court. Fill out and return the notice so you'll be on record to receive any moneys that may be distributed.

Any other steps you take will depend on how much money is owed and whether you're a secured or unsecured creditor. A secured creditor has collateral pledged (such as when a bank collateralizes a loan with a building). These are the first debts to be paid; in many bankruptcies there isn't anything left over for anyone else.

Most creditors are unsecured, which means they don't have any security pledged against the moneys owed. Although you should do everything you can to get some money out of the bankruptcy, in reality about all you can do is put an imaginary curse on the debtor, and kiss your money goodbye.

If you're owed thousands of dollars or hold a secured position, discuss the situation with an attorney who can advise you if you have any alternatives. However, the chance of getting any money is usually pretty slim. In any case, if you have any questions about the bankruptcy procedures and your rights, talk with your attorney.