Freelancing feels like freedom until something like this hits you. A client owes you $2,000, $5,000, maybe more — and then you get word they’ve filed for bankruptcy. Your first instinct is probably “okay, I’ll still get paid eventually.” Sometimes that’s true. Often it’s not.
Here’s the hard reality: when a client goes bankrupt, you become what’s called an unsecured creditor. That’s a legal way of saying you’re near the bottom of the repayment pile. As HCH Lawyers explains, bankruptcy courts pay secured debts first — things like mortgages and loans backed by actual collateral — then administrative and trustee fees, then certain higher-priority claims. Unsecured creditors like freelancers? You wait. And you wait. And by the time it’s your turn, there’s often almost nothing left.
One important exception: if you did work after a bankruptcy filing was already in process, those post-petition claims for goods or services can sometimes be given higher priority — but this is a legal nuance worth discussing with an attorney, not something to assume.
The Reddit freelance community puts it bluntly: jump through all the hoops to register as a creditor, and three years later you might get a check for $30 while the lawyers walked away with $150,000 in fees. That’s not a horror story. That’s just how it works.
So what can you actually do if this happens?
File your creditor claim immediately. When a client enters bankruptcy, a trustee takes over and manages the process. You have to formally register what you’re owed — if you don’t, you won’t see a single cent. Track down who the trustee or liquidator is and ask them directly how to prove your claim. Missing this step is giving up before the race even starts.
Document everything. Contracts, invoices, emails confirming the work was done and accepted — gather all of it. The cleaner your paper trail, the stronger your position when the court is deciding what you’re owed.
Don’t count on that money. Seriously. If you’re waiting on payment from a company that’s now in bankruptcy proceedings, treat that money as gone in your budget. If something comes back, great. But don’t let it be the reason you can’t pay your own bills.
The bigger lesson here is actually about protecting yourself before this ever happens. Get contracts that require a deposit upfront — 25% to 50% before you start. Break longer projects into milestones with payments attached. The less money owed to you at any given moment, the less you can lose if a client suddenly implodes. Experienced freelancers learn this the hard way so you don’t have to.
Note: Bankruptcy law in the U.S. is primarily federal, but some details can vary. If you’re outside the U.S., your country’s rules may differ significantly.