How to take on a bankrupt client?

If a company is already in bankruptcy, but wants to engage my services or buy my product, what should I be aware of? Is that just a completely dumb idea? What can I do to protect myself?

Bankrupcy Clients

asked Apr 12 '12 at 01:17

Larsenal
106 points

Whats your location? – Ryan 12 years ago
I'm in the United States. – Larsenal 12 years ago

3 Answers

Chapter 11 or 7? Companies in bankruptcy can enter into enforceable contracts -- they generally need to be approved by the bankruptcy judge or be entered into "in the ordinary course of business." If it's a Chapter 7 bankruptcy, then the company is supposed to be closing up shop in an orderly manner.

Talk with an attorney -- the right answer depends on where they are in the bankruptcy process, the nature of your contract, and on how your contract was approved.

answered Apr 12 '12 at 01:58

Chris Fulmer
2,849 points

Exactly. Good news - if that is done properly, then FOR YOU there is no problem - your invoices go ahead of the bankrupty proceedings. THis is becausse if you shut down a company, the liquidator sometimes needs services, so he has to be able to pay them. So, if done properly, you deal with a normal "non bankrupt" client for your invoices. – Net Tecture 12 years ago

You need legal advice from a lawyer. Not only do you run the risk of not getting paid, but the bankruptcy courts can also take back money you do get paid.

answered Apr 12 '12 at 01:23

Gary E
12,510 points

This is easy - get paid before you perform the services or deliver the product. Explain to them you understand they are under bankruptcy protection and as a small business owner you need to make sure you receive prompt and consistent payment.

If that doesn't work for them then save yourself the potential hassle - no deal.

answered Apr 12 '12 at 13:29

Ryan Doom
5,472 points

Ah, no, that is not how it works. If the liquidator or whoever manages it properly does it, there is no "bankruptcy protection", it is a normal "solvent" business (the liquiator can use cash to pay this invoice, for exmaple when he needs to ship goods to sell, the shipping company gets paid in full - only OLD creditors are likely loosing money – Net Tecture 12 years ago
THat's actually a pretty common way to deal with companies in bankruptcy. Not technically necessary, as you point out. – Chris Fulmer 12 years ago
I totally agree with Chris. This is a VERY common approach. I personally wouldn't go as far as requiring total payment in advance or 'no deal' in all cases like Ryan said. There is lots of room for negotiation in deals like this. Another great option in some cases is bartering for part or all of your fee. – Dave Feyereisen 11 years ago