Chapter 11 Bankruptcy Insurance: Recovery Options for Creditors

What Is Chapter 11 Bankruptcy Insurance?

There isn’t a standalone policy called “Chapter 11 bankruptcy insurance.” The term describes how trade credit insurance responds when a customer files Chapter 11.

Instead of waiting years for court-administered payouts, insured creditors recover quickly, often 80–90% of covered receivables, directly from the insurer.

Why Recovery Matters

• In Chapter 11, unsecured creditors often recover only pennies on the dollar.
• Claims can take years to resolve, tying up working capital.
• Missed payments ripple through supply chains, creating secondary defaults.

Insurance short-circuits that process. Creditors get paid quickly, then insurers step into the bankruptcy queue to pursue recovery themselves.

How the Recovery Process Works

1. Filing: Customer enters Chapter 11 and defaults on invoices.
2. Claim: The insured creditor files with the insurer, not just the court.
3. Payment: Insurer reimburses the creditor for the insured portion.
4. Subrogation: The insurer takes over creditor rights in bankruptcy court.

This shifts the burden of waiting and legal collection from the creditor to the insurer.

Benefits for Creditors

• Fast cash flow: No waiting for years of bankruptcy proceedings.
• Reduced write-offs: Losses are covered rather than absorbed.
• Lender confidence: Insured receivables remain valuable collateral.
• Stability: Businesses keep operating while insurers handle recovery.

Who Gains the Most

• Suppliers facing large unpaid orders.
• Lenders holding receivable-backed loans (see our insurance for lenders overview).
• Exporters exposed to foreign insolvency risks (our guide to trade credit insurance explains more).

FAQs

1. Is this different from trade credit insurance?
No. It’s trade credit insurance applied to Chapter 11 defaults.

2. What portion of debt is recovered?
Typically 80–90% of insured receivables.

3. Does coverage apply to all industries?
Yes. Any creditor with exposure to bankruptcy risk can benefit.

Summary

Chapter 11 bankruptcy insurance gives creditors a faster, more reliable recovery option—converting long, uncertain court claims into predictable payouts.

Contact us today to learn how we can help protect your business.

Disclaimer:

This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies.  It is not meant to supersede any policy requirements.  Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation.

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.