All 23 Collections & Bad Debts questions
More in Collections & Bad Debts
What legal/regulatory considerations apply to collections? How does dispute management connect to collections and bad debt? How do CECL and IFRS 9 change bad-debt estimation for receivables? What escalation options exist when internal collections fail? What is factoring and how does it differ from a collections strategy? How is bad-debt expense presented in the financial statements? How do you decide when to write off versus continue pursuing a debt? How do you calculate and interpret the bad-debt-to-sales ratio?
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Accounts Payable & Receivable › Collections & Bad Debts

How do you handle receivables when a customer files for bankruptcy?

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Answer

Stop collection activity (an automatic stay applies), file a proof of claim with the court, and classify the balance by likely recovery (secured vs unsecured; unsecured creditors often recover little). Provide/write off based on expected recovery, and record any eventual distribution when received. Legal counsel guides the claim process.
Real-world example On a customer's Chapter 11 filing, AR halts collections, files a proof of claim, and provides fully for the unsecured balance.

Common follow-ups: What is the automatic stay? | Why do unsecured creditors recover less?

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All 23 Collections & Bad Debts questions