When Bankruptcy Follows a Breach of Contract: What You Need to Know in New York

A broken contract can throw your entire business off balance. You were counting on that deal, maybe to cover payroll, maybe to fund your next phase - and now, it’s gone. Worse? The other party filed for bankruptcy. So not only are you chasing a breach, you’re up against federal protections, court deadlines, and confusing legal rules.

You might feel like the system’s working against you. It’s not. You just need someone who knows how to work within it and push back when needed.

Our commercial litigation attorneys at Horn Wright, LLP, help New York businesses handle the fallout of contract disputes tangled up in bankruptcy. 

We know what’s at stake. We’ve seen what happens when unpaid contracts stall growth or strain a small team. And we’re here to help you take back control – strategically, confidently, and without wasting more of your time.

The Contract Fell Apart, Now There’s a Bankruptcy Filing. What Happens Next?

The second someone files for bankruptcy, something called the automatic stay kicks in. That’s just legal speak for a pause button. You can’t sue them, can’t collect, can’t even continue a lawsuit that’s already started. 

Sounds frustrating, right? It is. But here’s the good news: you still have options.

If the breach happened before they filed, you can file a proof of claim with the bankruptcy court. This is your chance to say, “Here’s what I’m owed.” Now, whether you’ll recover that money depends on a lot of factors. Most likely, you’ll be seen as a “general unsecured creditor,” which puts you near the bottom of the payment line.

If the contract was still in effect when they filed, they get to choose whether to assume or reject it. If they assume it, they’ve got to fix any defaults and honor it going forward. If they reject it? That’s treated like a breach, and you can file a claim for damages.

This part can move quickly, so if you're in this position, don’t wait around.

They Filed for Bankruptcy. You’re Left Holding the Bag. What Now?

If you’re in a partnership or business deal and the other party files for bankruptcy, it’s more than a legal hiccup. It can disrupt your cash flow, delay key operations, and force you to rethink next steps. You might’ve been in the middle of fulfilling your part of the contract, now you’re wondering if you’ll get paid at all.

Here’s how you can protect yourself:

• Dig into the contract: Look for anything that deals with bankruptcy, early termination, or personal guarantees. A surprising number of contracts in New York include guaranty language that gives you another shot at recovery, even if the business itself is now in bankruptcy.
• Gather your records: This is the time to be detailed. Save every invoice, every email, every receipt. The more organized you are, the stronger your claim will be.
• File your proof of claim on time: This one’s non-negotiable. Miss the deadline, and you’re probably out of luck.
• Watch the case closely: Bankruptcy filings are public. You can follow updates on Public Access to Court Electronic Records or ask your New York attorneys to monitor everything for you. Motions can be filed fast. You don’t want to be the last to know.

If this was a more complex relationship, like a co-owned venture or a business you invested in, don’t try to handle it alone. A partnership dispute attorney can help you protect your stake and minimize further loss.

You Deserve to Recover What You’re Owed. Here’s How You Might Be Able To

Let’s be honest: collecting on a contract after a bankruptcy isn’t easy. But it’s not impossible, either. Here’s how to increase your odds:

• Build a bulletproof claim: Don’t just toss a number on a form. Support it with contracts, correspondence, payment records - anything that proves what you’re owed. 
• Look beyond the business: Was there a personal guarantor? In New York, that’s not uncommon - especially in leases, service contracts, and supplier agreements. If someone personally guaranteed the obligation, they might still be responsible. 
• Was it fraud? That changes things: If you believe they lied, misrepresented facts, or acted intentionally to cheat you, you may have a claim that’s non-dischargeable under 11 U.S. Code Section 523. That means bankruptcy wouldn’t wipe it away, but you’ve got to prove it.
• Watch the reorganization plan: In Chapter 11 cases, the debtor puts together a repayment plan. If you’re a creditor, you may get to vote on it. If the plan favors insiders or gives you pennies while others get dollars, you have the right to object. 
• Bring in a real advocate: This is where strategy matters. A business dispute resolution lawyer can help you map out your options and push for the best possible outcome, whether that’s negotiation, litigation, or both.

If your case turns into a lawsuit, and many do, strong commercial lawsuit representation is critical. You want someone who knows how to move fast, challenge weak plans, and fight hard when necessary.

And yes, even if bankruptcy’s in play, your breach of contract claim may still be valid. Don’t walk away just because the process looks intimidating.

Need a Legal Team That Knows How to Handle This?

Our commercial litigation lawyers at Horn Wright, LLP, work with business owners, executives, and entrepreneurs across New York who’ve been put in impossible situations because someone didn’t hold up their end of the deal. 

Bankruptcy doesn’t erase your rights. It just changes how you have to fight for them. And we’re here to make sure you’re not doing that alone.

Whether you’re just starting to figure this out or you’ve already filed your claim, we’ll help you take the next step - with clarity, urgency, and the kind of legal insight that gets results. 

When you're ready to protect what’s yours, call (855) 465-4622. Let’s schedule your FREE consultation with one of the best law firms in America.