The email arrives on a Tuesday morning, or maybe it’s a phone call from your accounts receivable team: a customer who owes you money — possibly a significant amount — has filed for bankruptcy protection. For many business owners, this moment triggers an instinctive, understandable reaction: call the customer, send a demand letter, stop the next shipment, grab whatever you can before the window closes. Those instincts, however natural, can land you in serious legal trouble. The bankruptcy system is a federal legal framework with rules that override normal business collection practices the instant a petition is filed. Knowing what to do — and what not to do — in the first 48 hours can protect you legally, preserve your recovery options, and position you as a creditor with a legitimate claim rather than one who has already forfeited rights through a misstep.

The First Thing to Understand: Everything Just Changed

When a debtor files for bankruptcy, a federal judge effectively takes control of that debtor’s financial life. The bankruptcy court — not your contract, not your state’s collection laws, not your invoices — now governs what happens to the money you are owed. This is not a collection process that runs parallel to what you might do on your own. It is a court-supervised proceeding that replaces ordinary collection remedies with a structured claims process. Your job in the first 48 hours is to stop, take stock, and begin working within that system rather than fighting it.

The most important legal concept you will encounter immediately is the automatic stay. The moment a bankruptcy petition is filed — not when you receive notice, not when the court sends you paperwork, but the moment the debtor files — a federal injunction springs into existence that prohibits virtually all collection activity against the debtor. We cover the automatic stay in depth in a separate article, but you must understand right now that it means you cannot call the debtor demanding payment, cannot file a lawsuit, cannot continue a lawsuit you already started, cannot repossess collateral, cannot freeze a bank account, and cannot set off a debt owed to the debtor against what the debtor owes you — at least not without court permission. Violating the automatic stay can result in sanctions, fines, and orders requiring you to return any money or property you collected after the filing date.

Step One: Confirm the Filing and Get the Case Number

Before you do anything else, verify that the bankruptcy is real and get the basic case information. Bankruptcy filings are public records available through the federal court’s PACER system (Public Access to Court Electronic Records). You can search by debtor name and find the case number, the chapter filed (Chapter 7, 11, or 13), the filing date, the court where the case is pending, and the name of the trustee or judge assigned to the case. This information is foundational. Every step you take from this point forward — filing a proof of claim, attending a creditors’ meeting, asserting special rights — will require you to reference the case number and comply with the specific court’s procedures.

You should also identify which chapter of bankruptcy your customer filed. Chapter 7 is a liquidation — the debtor’s non-exempt assets are sold and the proceeds distributed to creditors, after which most debts are discharged. Chapter 11 is a reorganization — the debtor continues operating and proposes a plan to repay creditors over time. Chapter 13 is also a reorganization, but available only to individuals with regular income and debts below statutory caps. If your customer is a business, it likely filed Chapter 7 or Chapter 11. Each chapter has a very different trajectory, and your strategy as a creditor differs significantly depending on which path the debtor has chosen.

Step Two: Stop All Collection Activity Immediately

This cannot be said too plainly: stop all collection activity the moment you confirm the filing. Alert every person in your organization who might take action against this customer — your collections team, your accounts receivable department, your outside collection agency, your litigation counsel. Send an internal communication immediately putting everyone on hold. If you have a pending lawsuit against the debtor, contact your litigation attorney and tell them to take no further steps until bankruptcy counsel has been consulted. If you were scheduled to conduct a deposition, enforce a judgment, or execute on property, those actions must stop.

Courts take automatic stay violations seriously because the stay is one of the central protections the bankruptcy system provides to debtors. Creditors who violate the stay — even unintentionally — can be ordered to pay the debtor’s attorney’s fees, pay punitive damages in egregious cases, and undo whatever collection they accomplished. The fact that you did not receive formal notice of the filing is not always a complete defense, particularly if you had informal knowledge. Get the word out inside your organization immediately.

Step Three: Preserve All Records

Within the first 48 hours, you should begin gathering and preserving every document related to your relationship with the customer. This means contracts, purchase orders, invoices, delivery confirmations, correspondence, payment history, credit applications, personal guarantees, security agreements, and any other document that establishes the existence and amount of the debt or the terms under which credit was extended. In bankruptcy, you will need to prove your claim. Courts and trustees are skeptical of claims supported by nothing more than a summary printout. Contemporaneous records — the original signed contract, the invoices as they were sent, the payment records as maintained in your system — carry far more weight.

Document preservation is also important for a less obvious reason: some of the most valuable rights available to creditors in bankruptcy — reclamation rights, arguments against dischargeability, preference defenses — depend on factual details that are easier to prove when records are organized and intact. The time to find the signed security agreement is now, not six months from now when the trustee challenges your secured status.

Step Four: Assess Your Legal Position

With records in hand, the next task is a frank assessment of where you stand as a creditor. Ask the following questions. First, do you have a security interest in any of the customer’s property? If you took a lien on inventory, equipment, accounts receivable, or other assets, and if you properly perfected that lien before the bankruptcy filing by filing a UCC financing statement, you may be a secured creditor — a much stronger position than an unsecured creditor. Second, do you hold a personal guarantee from an owner, officer, or principal of the debtor? A personal guarantee may be enforceable against the guarantor even though the debtor is in bankruptcy, though you must be careful about how you pursue it. Third, did you ship goods to the customer within the last 45 days that you have not yet been paid for? You may have reclamation rights. Fourth, did the customer pay you any money within the 90 days before the filing? Those payments may be subject to clawback by the trustee as preferential transfers.

Each of these questions leads to a different set of rights and obligations, and the answers will shape your entire strategy in the bankruptcy case. If you have a perfected security interest, your first priority is to verify that the lien was properly documented and filed. If you received payments in the 90-day window, you need to think now about whether you have defenses to a preference action. If you shipped goods recently, you need to move quickly on reclamation because those deadlines are very short.

Step Five: Evaluate Ongoing Business Obligations

Do you have a continuing contractual relationship with the customer — an executory contract, in bankruptcy parlance? An executory contract is one where both parties still have material obligations to perform. A supply agreement under which you deliver goods monthly and the customer pays monthly is a classic executory contract. Under the Bankruptcy Code, the debtor (or trustee) has the right to assume or reject executory contracts. If the debtor assumes the contract, they must cure any defaults and agree to perform going forward. If the debtor rejects it, you have a general unsecured claim for breach of contract damages.

The practical question you face immediately is whether to continue performing under an existing contract. In a Chapter 11 reorganization, the debtor may ask you to keep supplying goods or services while the reorganization is pending, expecting you to trust that you will be paid. This puts you in a difficult position. Goods and services you deliver after the bankruptcy filing are administrative expenses — claims entitled to payment ahead of pre-petition unsecured debts — but only if the debtor has assets or income sufficient to pay them. You are generally not obligated to continue performing an executory contract if the debtor has defaulted on pre-petition obligations and has not provided adequate assurance of future performance. Consult with bankruptcy counsel before making this decision, because both continuing to perform and stopping performance carry risks.

The Mistakes That Cost Creditors the Most

Beyond violating the automatic stay, the first 48 hours are full of other mistakes that creditors routinely make. One of the most common is applying a customer’s pre-petition deposit or credit balance to reduce the outstanding debt. This is called a setoff, and while setoffs are sometimes permitted in bankruptcy, they require court approval and are subject to special rules. Exercising a setoff without court permission violates the automatic stay. Another common mistake is stopping shipments of goods that the customer has already paid for and is entitled to receive. Withholding goods or services owed under a contract can itself constitute a stay violation if you are doing it as a form of leverage over the debtor.

Some creditors, upon learning of a bankruptcy filing, instinctively terminate contracts with the debtor, citing insolvency clauses or ipso facto provisions in their agreements. These clauses — which purport to allow termination upon the debtor’s insolvency or bankruptcy filing — are generally unenforceable under Section 365(e) of the Bankruptcy Code. Terminating a contract based on an ipso facto clause can expose you to contempt of court. Review your contracts carefully with counsel before taking any action based on them.

Another mistake is contacting the debtor’s principals, officers, or employees to press them for payment of the company’s debts. While the automatic stay technically applies to actions against the debtor entity rather than individuals, pressuring individuals to pay company debts can raise its own legal issues, and if those individuals are co-debtors who filed their own bankruptcy cases, the co-debtor stay applies directly. Similarly, some creditors try to collect from guarantors immediately after the company files. That may be permissible — the automatic stay generally does not protect non-debtor guarantors in Chapter 11 — but the answer is fact-specific and you should confirm the guarantor’s status before proceeding.

Step Six: Hire Bankruptcy Counsel — and Do It Quickly

Bankruptcy is a specialized area of federal law with its own procedural rules, its own vocabulary, and deadlines that, if missed, cannot always be excused. If the amount you are owed is significant — and the threshold for what is ‘significant’ will depend on your business — you should consult with a bankruptcy attorney within the first 48 hours. An experienced bankruptcy attorney can tell you what chapter was filed and what it means for you, help you evaluate your secured or unsecured status, advise on whether you have reclamation rights or other special claims, determine whether you have received any preferential payments that need to be assessed, and monitor the case for critical deadlines including the proof of claim bar date.

For smaller claims, the calculus is different, but even then, a single consultation with a bankruptcy attorney can save you from expensive mistakes. Many attorneys offer flat-fee consultations for exactly this situation. The cost of an hour of advice is almost always far less than the cost of a stay violation or a missed proof of claim deadline.

Step Seven: Watch for Court Notices and Respond to Them

Once a bankruptcy case is filed, the bankruptcy court mails notices to all creditors listed on the debtor’s schedules. These notices will include the date of the first meeting of creditors (also called the 341 meeting, after the section of the Bankruptcy Code that requires it), the deadline for filing proofs of claim, and other important case events. These notices are mailed to the address on file in the debtor’s records, which may not be current. If you are not receiving notices and you believe you should be, you can file a notice of appearance through the court’s electronic filing system (or through an attorney) to ensure that you receive copies of all filings going forward.

The proof of claim deadline — called the bar date — is the single most important deadline in most bankruptcy cases. If you do not file a proof of claim before the bar date, you may lose your right to receive any distribution from the bankruptcy estate entirely. The bar date is typically set by the court relatively early in the case, and in Chapter 7 cases it can be as soon as 60 to 90 days after the filing. Do not wait until you receive a bar date notice to prepare your claim. Begin gathering the documentation you need now.

A Note on Emotional Reactions and Strategic Clarity

There is an emotional dimension to learning that a customer has filed for bankruptcy that business owners should acknowledge honestly. If you are owed a substantial sum, the news can feel like a personal betrayal, particularly if you extended credit based on a long-standing relationship or made operational decisions in reliance on expected payment. Those feelings are understandable, but they can lead to decisions — confrontational phone calls, aggressive letters, premature contract terminations — that make your legal position worse rather than better.

The bankruptcy system, for all its complexities, is designed to provide an orderly resolution of competing creditor claims. If you engage with it strategically and methodically, you stand the best chance of recovering as much as the law allows. If you fight it emotionally and impulsively, you risk converting a difficult situation into a much worse one.

Summary: Your First 48-Hour Checklist

To summarize the immediate steps every business owner should take: Verify the filing on PACER and obtain the case number, chapter, and filing date. Stop all collection activity and alert everyone in your organization. Preserve all records related to the customer relationship. Assess whether you are a secured or unsecured creditor, whether you have received recent payments that could be preferential, and whether you have reclamation rights. Evaluate whether you have an ongoing contractual relationship with the debtor and what obligations it imposes. Do not terminate contracts, exercise setoffs, or take collateral without legal advice. Retain bankruptcy counsel promptly if the claim is significant. Monitor the court docket for notices and deadlines, particularly the proof of claim bar date. These steps will not guarantee full recovery — the bankruptcy system rarely does — but they will ensure that you are positioned to pursue every option the law makes available to you.

If your customer has just filed for bankruptcy and you are trying to understand your options, the attorneys at the Robmelton Law Firm are available to help you assess your position and navigate the claims process. Early intervention almost always produces better outcomes than waiting.