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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?

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Whats your location? – Ryan Apr 12 '12 at 8:03
I'm in the United States. – Larsenal Apr 12 '12 at 15:45

3 Answers

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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.

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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. – NetTecture Apr 12 '12 at 7:22
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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.

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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.

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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 – NetTecture Apr 12 '12 at 7:23
THat's actually a pretty common way to deal with companies in bankruptcy. Not technically necessary, as you point out. – Chris Fulmer Apr 12 '12 at 12:43

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