Customer Filed Chapter 7 – What to Do
A Chapter 7 bankruptcy filing by one of your customers is a liquidation. The debtor's non-exempt assets are sold by a court-appointed trustee, and the proceeds are distributed to creditors in a strict priority order. As an unsecured trade creditor – the category most suppliers fall into – you are near the bottom of that order. Acting quickly and correctly in the first few days can make the difference between recovering something and recovering nothing.
What happens immediately after a Chapter 7 filing?
The moment a Chapter 7 petition is filed, an automatic stay takes effect under 11 U.S.C. § 362. The automatic stay immediately halts all collection activity: you cannot call the customer demanding payment, file or continue a lawsuit, repossess goods, or set off any amount owed against a deposit. Violating the automatic stay can expose you to contempt sanctions and damages.
Simultaneously, a bankruptcy trustee is appointed to take control of the debtor's estate. The trustee's job is to liquidate non-exempt assets and pay creditors according to the priority rules in the Bankruptcy Code. Most Chapter 7 cases are "no-asset" cases, meaning there is nothing left for general unsecured creditors after secured and priority claims are paid. The trustee will notify creditors if assets exist.
Should you stop shipping immediately after a Chapter 7 filing?
Yes. Stop all shipments the moment you learn of the filing. Any goods you deliver after the petition date become property of the bankruptcy estate. The trustee can accept or reject existing contracts, but you are not required to keep performing. Goods in transit at the time of filing present a more complex situation – consult counsel about reclamation rights under 11 U.S.C. § 546(c) and UCC § 2-702, which may allow you to demand return of goods delivered within 45 days of the filing if the debtor was insolvent at the time.
What is a 503(b)(9) administrative claim and do you have one?
Under 11 U.S.C. § 503(b)(9), the value of goods received by the debtor in the ordinary course of business within 20 days before the petition date is treated as an administrative expense – the highest priority unsecured claim, paid before general unsecured creditors. If you shipped goods and those goods were received by the debtor within the 20-day window, you likely have an administrative claim for that value. File a separate motion or include it in your proof of claim, supported by delivery confirmations and invoices.
How long do you have to file a proof of claim?
In a Chapter 7 case, the bar date for most creditors to file a proof of claim is typically 70 days after the petition date(Federal Rules of Bankruptcy Procedure 3002(c)). The court will mail a Notice of Chapter 7 Bankruptcy Case to all listed creditors with the exact deadline. If you are not on the creditor list – which happens when the debtor's records are incomplete – you may miss the notice entirely. Missing the bar date generally means your claim is disallowed.
File a proof of claim even in cases where you expect no distribution. Being on the official record preserves your rights if assets are later discovered.
How do you file a proof of claim?
Use Official Form B410, available at uscourts.gov. File it with the bankruptcy court where the case is pending – either electronically via PACER/ECF if you have an account, or by mail to the clerk of court. Include copies of invoices, contracts, purchase orders, or account statements that support the claim amount. Keep a copy with proof of filing.
How much will unsecured creditors recover in Chapter 7?
In the majority of Chapter 7 consumer and small-business cases, general unsecured creditors recover zero cents on the dollar. When assets do exist, unsecured trade creditors typically recover between 5 and 20 cents per dollar owed, depending on the size of the estate relative to total claims. Recovery is highest in cases involving substantial real property or equipment.
This is why early warning is valuable: stopping shipments and credit extension before a filing limits your total exposure. The goal is to minimize what you're owed on the petition date, not to maximize recovery after it.
Can the trustee come after payments you already received?
Yes. If you received a payment from the debtor within 90 days before the filing (or one year if you are an "insider"), the trustee may sue to recover that payment as a preferential transfer under 11 U.S.C. § 547. See our guide on trustee preference clawbacks for defenses available to you.
Know about a filing before the creditor notice arrives.
CaseWarn alerts you the morning after a filing is detected – typically 18 days before the official trustee creditor notice arrives.
Start monitoring free →Checklist: first 48 hours after learning of a Chapter 7 filing
- Stop all shipments and credit extension immediately
- Note the petition date and calculate the 20-day and 90-day lookback windows
- Identify all invoices outstanding and any goods delivered in the last 20 days
- Check the PACER docket for the case number, trustee name, and meeting of creditors date
- Find the bar date for filing proofs of claim (check the court notice or PACER)
- Prepare Form B410 with supporting documentation
- Notify your AR and legal team
- Consider retaining a bankruptcy attorney if your exposure exceeds $25,000