What happens when a company goes out of business and owes you money?

What happens when a company goes out of business and owes you money?

What happens when a company goes out of business and owes you money?



When a company goes out of business and owes you money, it can be a frustrating and stressful situation. Whether you are a customer, supplier, or employee, not receiving the money you are owed can have significant consequences. In this article, we will explore what happens when a company goes out of business and owes you money, and the steps you can take to try and recover your funds.

Understanding the Company’s Financial Situation

Before taking any action, it is important to understand the company’s financial situation. This can be done by researching public records, such as bankruptcy filings or court documents, which may provide insights into the company’s assets, debts, and potential for repayment. Additionally, reaching out to the company’s representatives or legal counsel can help you gather information about their financial status.

Secured vs. Unsecured Debt

When a company goes out of business, the debts it owes are typically classified as either secured or unsecured. Secured debts are those that are backed by collateral, such as a mortgage or a loan secured by specific assets. In the event of liquidation, secured creditors have a higher chance of recovering their funds by selling the collateral. Unsecured debts, on the other hand, are not backed by collateral and are considered lower priority in the repayment hierarchy.

Bankruptcy Proceedings

If a company is unable to pay its debts, it may file for bankruptcy protection. Bankruptcy proceedings aim to provide an organized and fair process for distributing the company’s assets among its creditors. There are different types of bankruptcy filings, such as Chapter 7 (liquidation) or Chapter 11 (reorganization), and the specific procedures and outcomes can vary depending on the jurisdiction and the company’s circumstances.

Filing a Proof of Claim

As a creditor, it is crucial to file a proof of claim in a bankruptcy case to assert your right to receive payment. This document outlines the amount owed to you and provides supporting evidence of the debt. Failing to file a proof of claim within the specified deadline can result in the loss of your right to participate in the distribution of assets.

Priority of Payments

In bankruptcy proceedings, there is a predetermined order in which creditors are paid. Secured creditors, such as banks with liens on specific assets, are typically the first to receive payment from the sale of collateral. After secured creditors are satisfied, unsecured creditors are paid in a specific order of priority, which may include administrative expenses, employee wages, taxes, and general unsecured claims.

Recovering Your Funds

While the chances of recovering the full amount owed to you in a bankruptcy case may be slim, there are still steps you can take to increase your chances of receiving at least a portion of your funds. Engaging the services of a bankruptcy attorney can help you navigate the complex legal procedures and maximize your recovery. Additionally, actively participating in the bankruptcy proceedings, attending creditor meetings, and staying informed about the progress of the case can ensure that your interests are represented.


When a company goes out of business and owes you money, the path to recovering your funds can be challenging. Understanding the company’s financial situation, filing a proof of claim, and actively participating in bankruptcy proceedings are crucial steps in increasing your chances of recovering at least a portion of the debt. However, it is important to recognize that the outcome may vary depending on the specific circumstances of the case.


– United States Courts: www.uscourts.gov
– Investopedia: www.investopedia.com
– Cornell Law School Legal Information Institute: www.law.cornell.edu