What should I do when a customer files for bankruptcy with my invoice unpaid?
What to do when a customer files for bankruptcy and owes you money
Short answer
Stop all collection activity the moment you receive the bankruptcy notice — no calls, no letters, no statements, no auto-charge attempts. The automatic stay under 11 USC 362 is immediate and federal, and willful violations can cost you actual damages, attorney fees, and punitive damages. File a Proof of Claim with the bankruptcy court to be in line for any distribution. Most general unsecured invoices recover 0 to 10 cents on the dollar in Chapter 7 and 20 to 50 cents in Chapter 11 reorganizations.
Bankruptcy filing is one of the few events that completely changes the rules for an unpaid invoice. The automatic stay under 11 USC 362 takes effect the moment the petition is filed — not when you receive notice, not when the case is confirmed, instantly on filing. Continuing collection activity past that point is illegal even if you did not yet know about the filing. The stay is federal, applies in every state, and binds first-party creditors as well as third-party collectors.
What stops, immediately: collection calls, demand letters, late notices, account statements, lawsuits already in progress, judgment enforcement, repossession, bank levies, wage garnishment, even sending the customer an invoice for the prepetition balance. Any communication to the customer about the prepetition debt is treated as a stay violation in most circuits. Routine invoicing for postpetition transactions is fine; the prepetition debt is what is frozen.
What you actually need to do: stop all auto-charge attempts on cards or bank accounts, notify your collections vendor (including any AI calling system) to suspend the account, archive the file with the bankruptcy notice attached, and file your Proof of Claim with the court. The Proof of Claim is the form that puts you in line for distribution; without it, you get nothing even if the case has assets.
Proof of Claim deadlines are tight. The court issues a Notice of Bar Date after the case is filed, typically setting the deadline 70 to 90 days after the first creditors' meeting. File before it expires. Late claims are usually rejected entirely, though there are limited exceptions for creditors who were not properly noticed. Government claim deadlines are different (180 days). Check your specific bar date the moment the notice arrives.
Recovery expectations should be low. General unsecured creditors — which is what an unpaid invoice usually makes you — sit at the back of the priority line behind secured creditors, administrative expenses, and tax claims. Chapter 7 (liquidation) typical recovery for general unsecured: 0 to 10 cents on the dollar, with most cases distributing nothing. Chapter 11 (reorganization) typical: 20 to 50 cents over a multi-year plan, but distributions can take years to actually arrive. Chapter 13 (individual reorganization) recovery depends entirely on the plan.
Penalties for stay violations are real and routinely awarded. Under section 362(k), individual debtors injured by a willful stay violation can recover actual damages, attorney fees, and in appropriate circumstances punitive damages. Cases where creditors continued automated calls or auto-charges after the stay went into effect have produced multi-thousand-dollar judgments and worse. AI calling systems create a particular hazard here because the system continues calling unless somebody actively suspends it. Make sure your vendor honors the stay.
After discharge, the customer's prepetition debt is wiped. You cannot collect, sue, or even mention it without violating the discharge injunction (a separate federal protection that survives the bankruptcy case). New work after the bankruptcy filing is on new terms — most businesses move to deposit-required or COD until they are confident, which is usually the right call.
Syntharra suspends an account immediately on bankruptcy notice — no calls, no follow-ups, no auto-charges on the prepetition balance. Postpetition invoices for new work follow normal rules and are not affected. The system tracks the bar date and can surface a reminder when the Proof of Claim is due, but the filing itself is a decision you make, not the platform.