A customer filed for bankruptcy: the money you already collected is the part at risk

Two things happen at once, and they pull opposite ways. Everything you were doing to get paid becomes unlawful. Everything you already got paid becomes reviewable. Most suppliers deal with the first and meet the second a year later, in an envelope from a trustee.

Stop every act that looks like collection, today

The stay under 11 U.S.C. § 362 takes effect the moment the petition is filed — not when you receive notice. Section 362(a)(6) stays "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case". That is much wider than "sue": a statement of account, a portal reminder, a dunning email, a call to accounts payable.

The failure mode is almost never a deliberate letter. It is a billing system nobody switched off. Section 362(k) lets an injured debtor recover actual damages including costs and attorney's fees for a willful violation — willful meaning you knew of the case and meant to do the act, not that you meant to break the law. The first task is therefore operational: flag the account in every system capable of sending anything.

Setoff is caught too. Section 553 preserves the right to set off mutual pre-petition debts, but § 362(a)(7) stays the act of doing it, so you need relief first — and § 553(b) applies its own ninety-day test to any improvement in your position. Freezing a balance without an order is where careful creditors get sanctioned.

What the stay does not reach

The stay protects the debtor and property of the estate, not a third party liable for the same debt. If the owner or a parent company gave a guarantee, that separate obligation generally remains enforceable while the company sits in chapter 11 — which is why a personal guarantee is worth taking when the credit account is opened. The narrow exception is § 1301, covering an individual co-debtor on a consumer debt in chapter 13.

The money you already collected is the money at risk

Section 547(b) lets a trustee avoid a transfer to a creditor, on account of an antecedent debt, made while the debtor was insolvent, within 90 days of the petition — a year for insiders — where it gave the creditor more than a chapter 7 distribution would have. Read those elements against an ordinary trade payment: almost all are satisfied automatically.

Insolvency is presumed: § 547(f) says the debtor "is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition". And where unsecured creditors are paid cents, being paid in full beats the chapter 7 alternative. Any payment inside the window is therefore presumptively recoverable, and the argument happens entirely in the defences.

That produces a perverse ranking. The supplier who escalated hardest — a lump sum against old invoices, a wire instead of the usual cheque, then nothing shipped after — has payments that resemble nothing else in the relationship and nothing to net against them. The supplier who kept delivering on normal terms is usually the safest creditor in the file. The escalation ladder for an unpaid invoice is still right for a customer who is merely slow; it costs more when the customer is failing.

A preference demand does not arrive quickly. Section 546(a) gives the trustee the later of two years after the order for relief or one year after a first trustee is appointed, so demands routinely concern a customer you wrote off long ago.

The two defences, and the ledger that proves them

Section 547(g) splits the burden: the trustee proves the elements in (b), and you prove the defences in (c). That allocation is why the outcome turns on your bookkeeping rather than on your argument.

The ordinary course of business defence in § 547(c)(2) protects payment of a debt incurred in the ordinary course where the transfer was either made in the ordinary course between these two parties or made according to ordinary business terms in the industry. The limbs are alternatives; you need one. The first is proved from the relationship's own history — days from invoice to payment before the window against days inside it, plus method, amount and who initiated it.

The subsequent new value defence in § 547(c)(4) is the arithmetic one, and the one small suppliers overlook. Value you supplied after receiving a payment, and were not paid for by an unavoidable transfer, nets off the preference — a supplier who carried a failing customer through the whole window often reduces the exposure to nothing. Section 547(c)(1) covers a genuinely contemporaneous exchange, which is why moving a slipping customer to prepayment is safer than squeezing them for old balances.

File the proof of claim anyway

The deadline depends on the chapter. Rule 3002(c) makes a claim timely in a voluntary chapter 7, 12 or 13 case if filed within 70 days after the order for relief, with 180 days for a governmental unit. In chapters 9 and 11 the court sets the date under Rule 3003(c), which also requires a creditor to file whenever its claim is unscheduled or scheduled as disputed, contingent or unliquidated. Read the debtor's schedules rather than assuming your figure appears correctly.

Filing has one real cost. In Langenkamp v. Culp (1990) the Supreme Court held that a creditor who submits a claim enters the claims-allowance process and loses its Seventh Amendment right to a jury trial on a trustee's preference action. Most trade creditors file anyway: an unasserted claim is worth nothing, and § 502(d) lets the estate disallow your claim until any avoidable transfer is repaid.

The parts of your debt that are better than unsecured

Not every dollar ranks the same. Under § 503(b)(9), the value of goods received within 20 days before the petition, sold in the ordinary course, is an administrative expense paid ahead of general unsecured claims. Goods, not services — the line that catches out consultants. Under § 546(c), a seller may reclaim goods delivered to an insolvent debtor within 45 days before the case, on written demand within 45 days of receipt, or 20 days of the filing if that period has run. Neither right is automatic, and the reclamation deadline can expire before your first meeting with a lawyer — read the delivery dates on your last consignments today.

When the preference demand arrives

It usually starts as a letter proposing that you return a sum by a date. It is not a court order. Since the Small Business Reorganization Act of 2019, § 547(b) requires the trustee to act "based on reasonable due diligence... and taking into account a party's known or reasonably knowable affirmative defenses" — so defences you have shown them are harder to ignore than defences you keep to yourself.

Two housekeeping points. If you use a collection agency, brief it: the limits in what debt collectors can and cannot do sit on top of the stay, not instead of it. And a signed debt acknowledgment fixes a balance but does not immunise the payment that follows it.

What this changes about the next customer

The lesson is not to chase less. It is that the protections which work are installed before the trouble starts. A credit limit reviewed on a schedule. A guarantee from someone with assets, taken at account opening. Payment terms in the sales agreement rather than an email thread. A move to prepayment when a customer slips, which is safer commercially and a cleaner § 547(c)(1) position.

And keep the ledger. What decides a preference claim years from now is a dated list of what you invoiced, what they paid, when, and what you delivered afterwards. Every business generates it. Almost none can produce it two years after writing a customer off.