Customer Filed Chapter 11 – What to Do
Chapter 11 is a reorganization bankruptcy, not a liquidation. Your customer continues to operate while proposing a repayment plan for its debts. As a supplier, you face a different set of decisions than in a Chapter 7: whether to keep selling, how to protect pre-petition receivables, and whether to negotiate special treatment as a critical vendor. Acting deliberately in the first week matters enormously.
What happens to your outstanding invoices after a Chapter 11 filing?
Invoices that existed before the petition date become pre-petition claims. They are subject to the automatic stay – you cannot collect on them outside the bankruptcy process. These claims will be paid, if at all, according to the debtor's reorganization plan, which creditors vote on and the court confirms. Depending on the plan, you may receive cents on the dollar, or payment in full over several years.
Invoices for goods or services provided after the petition date are treated as ordinary business expenses (administrative claims) and must be paid in full for the plan to be confirmed. This distinction – pre-petition vs. post-petition – is the most important line to understand.
Should you keep doing business with a customer in Chapter 11?
This is a judgment call that depends on your exposure, the debtor's prospects, and whether you can get paid going forward. If you decide to continue, insist on payment in advance or on delivery for post-petition orders. Post-petition claims are administrative expenses and are paid ahead of pre-petition unsecured claims in any plan, but only if the debtor actually has cash to operate.
If the customer's reorganization plan is uncertain, limiting new exposure is prudent. The automatic stay prevents you from terminating a contract solely because of the bankruptcy filing, but you can decline to accept new purchase orders.
What is a Critical Vendor Order and how do I qualify?
Early in a Chapter 11 case, many debtors seek court approval to pay certain pre-petition suppliers in full – these are called critical vendor orders. To qualify, the debtor must demonstrate that your goods or services are essential and that you would otherwise refuse to deal on a going-forward basis, harming the reorganization.
If the debtor's counsel contacts you about critical vendor status, you will typically be asked to sign a trade agreement committing to supply goods at pre-petition terms for a defined period. In exchange, your pre-petition receivables are paid in full. This is the best possible outcome for a pre-petition claim, but it requires negotiation and is not guaranteed.
What is a 503(b)(9) claim for goods delivered before the filing?
Goods received by the debtor within 20 days before the petition date carry administrative expense priority under 11 U.S.C. § 503(b)(9). This means you are paid before general unsecured creditors, and in full, as a condition of plan confirmation. Identify all shipments in the 20-day window, match them to your invoices, and file an administrative claim supported by proof of delivery.
Should you file a proof of claim in Chapter 11?
Yes, unless you are listed in the debtor's schedules with the correct amount and you agree with that amount. In Chapter 11, the bar date is set by court order and is typically announced 30–60 days after the petition date, with a deadline of 60–120 days from the petition date. Watch the PACER docket for the bar date order, or set up a case alert.
Can you join the official creditors committee?
In larger Chapter 11 cases, the U.S. Trustee appoints an Official Committee of Unsecured Creditors (UCC) made up of the debtor's largest unsecured creditors. The committee has legal standing to investigate the debtor, challenge the reorganization plan, and negotiate on behalf of all unsecured creditors. Committee members' legal fees are paid by the estate. If your pre-petition claim is large and you want an active role, contact the U.S. Trustee's office to express interest in serving.
How does a Chapter 11 plan affect what you get paid?
The reorganization plan classifies claims and specifies what each class receives. General unsecured trade creditors are often placed in a single class and offered a percentage recovery (often 10–50 cents on the dollar, or prorated new equity). You vote on the plan as part of your class. If the plan is confirmed over your objection (a "cramdown"), you must receive at least what you would have received in a Chapter 7 liquidation.
Find out about a Chapter 11 filing before you ship another order.
CaseWarn alerts you the morning after a filing is detected – typically 18 days before the official trustee creditor notice arrives.
Start monitoring free →Key differences: Chapter 11 vs. Chapter 7 for suppliers
| Factor | Chapter 7 | Chapter 11 |
|---|---|---|
| Business continues? | No – liquidation | Usually yes |
| Pre-petition claims | Paid from liquidation proceeds | Paid per reorganization plan |
| Post-petition sales | Do not ship | Possible with caution |
| Critical vendor option | No | Yes – negotiate early |
| Creditors committee | Rarely | Yes in larger cases |
| Timeline | Months | 1–3 years or more |