By Todd Zoha, CEO, One Exchange Street,

Other than actually filing for bankruptcy, the one thing that business owners fear most may be having customers that owe them money file for bankruptcy. However, if you are in the situation where a newly bankrupt customer owes you money, these five steps from Todd Zoha, CEO of One Exchange Street can help you navigate your customer’s bankruptcy proceedings with confidence.

  1. Be patient. “Be patient” may be the last thing you want to hear, but it is wise counsel. Bankruptcies can take months, or even years, to work their way through the court system, and your bankrupt customer can no longer legally pay you without a court order. Unfortunately, this brings with it many unknowns, most notably how much you will recover on your claim or when you will receive it.
  2. Review your claim. The good thing about the US bankruptcy system is that each case’s information is always publicly available. You can monitor the status of a bankruptcy proceeding at case sites hosted by Kurtzman Carson Consultants, Epiq Systems or Garden City Group. Once you find the case, you can look up your bankrupt customer’s current schedules of assets and liabilities to understand what it believes you are owed. In addition, be sure to check your claim’s priority.
  3. Find out the deadline to contest your claim – the “Bar Date.” Your have a voice in bankruptcy. If you believe the amount or priority of your claim is incorrect, or if you are not even listed as a claimant but believe you should be, you can contest that by filing a proof of claim prior to what is known as the “Bar Date.” As with everything, this process moves at the Court’s pace, but bar dates are easily found at the sites shared in point 2.
  4. Check the date of your last sale to the customer. Timing is everything, and if you sold goods to your customer within 20 days of its bankruptcy petition date, your claim may hold a higher priority than others. In bankruptcy terms, this is called a 503(b)(9) administrative claim, which generally results in a higher recovery than general unsecured claims.
  5. Evaluate selling your bankruptcy claim. There is an active secondary market for bankruptcy claims, and it is likely that you will hear from specialized “claims buyers.” It is in fact very common to sell bankruptcy claims, and many companies do so to get certainty in their operations, secure liquidity and avoid the cost and time required to monitor the bankruptcy process. However, because you will be dealing with professional claims buyers, you should either hire an attorney experienced in claims trading or turn to a neutral third-party marketplace like One Exchange Street, which can provide a level playing field for both buyer and seller.

Bankruptcy is no fun for anyone, whether you are the bankrupt company or if that company is your customer. However, with the right knowledge and guidance, the process does not have to be frightening or overly negative.

Todd A. Zoha is the cofounder and CEO of One Exchange Street, a platform for online trading in bankruptcy claims.