Bankruptcy filings are up considerably. So, don't be surprised if you open your mail and find a letter from an attorney telling you that one of your clients or customers is seeking relief from the courts to solve his or her financial troubles.

The bankruptcy process is full of rules that the debtor and creditor must follow. However, bankruptcy is not as formal as say civil court, says Victoria Ring, a debtor bankruptcy specialist and CEO of Colorado Bankruptcy Training, which provides instruction and support to attorneys nationwide. Bankruptcy is a big "Let's Make a Deal." You can negotiate a resolution, hopefully one that is in your favor, in cases where the debtor is trying to save the business and pay back creditors.

With a Chapter 11 or Chapter 13 filing, reorganization is the goal. Debtors are required to pay debts according to a repayment plan the court sets up. Chapter 7 bankruptcy filing is quite different; the business is shutting its doors permanently and individuals are given a "fresh start" by liquidating assets and discharging debts.

Of course, the problem is that the vast majority of the filings are Chapter 7. More than 1.5 million consumer bankruptcy filings were processed over a 12-month period ending September 30, a 14 percent increase from the previous year, according to data released by the Administrative Office of the U.S. Courts. Chapter 7 filings were up 16 percent to over 1.1 million. Chapter 13 filings were up 9 percent to 434,839, while Chapter 11 filings were down nearly 4 percent to 14,191. Business bankruptcy filings fell 1 percent to 58,322.

Samuel J. Gerdano, executive director of the American Bankruptcy Institute (ABI), expects bankruptcies to rise in months ahead as unemployment hovers near 10 percent and access to credit remains tight. "As the economy looks to climb out of the recession, businesses and consumers continue to file for bankruptcy to regain their financial footing."

The extent of your customer or client's financial situation is more clearly revealed in the bankruptcy filing and "341" notices you receive. These will spell out 1) the type of bankruptcy filed; 2) the date the case was filed; 3) the court in which the case is being heard; 4) the deadline to file a proof of claim; 5) the time, date, and place for the first meeting of creditors; and 6) the rules for collecting what's owed to you.

In some cases, you will have a better chance of getting paid the money that's due—maybe not all but at least some of it. Here are some guidelines. 

1. Stop Contact Completely

Once a person or business files for bankruptcy, you have to stop any and all collection activity. If you make contact to try to get your money back, you will violate the bankruptcy code and you can actually be sued. Even if you filed a lawsuit against the client, it gets stayed until the bankruptcy is completed. You can, however, contact the attorney or court appointed trustee to work out an arrangement on how your debt is handled in the bankruptcy, says Ring, who is the author of 102 Things Your Need to Know Before You File Bankruptcy. If for some reason you are not listed in the bankruptcy petition as a creditor who is owed money, then you will have the right to keep collecting on the debt even after the bankruptcy is over, says Ring.

2. Do a Cost-Benefit Analysis

Assess whether it is even worth your time or should you simply take the loss, says Daniel Gershburg, a Brooklyn, New York bankruptcy attorney. Meaning, "in a practical sense can you really get any money back from this consumer or client?" For instance, say the business grosses over $500,000 but it has over $1 million in debts and a long string of 15 creditors or more. There is very little chance you are going to receive any money back, Gershburg says. In most cases, he adds, small companies or consumers filing bankruptcy aren't going to have tangible assets that the trustee can sell and then distribute to any and all creditors. Ring suggests reviewing the schedule I and schedule J, included in every petition, which will show the filer's income and expenses.

Dig Deeper: Report: Businesses Going Bankrupt

3. Pay Attention to the Type of Bankruptcy

Chapter 7 is available to both individuals and businesses. Its purpose is to achieve a fair distribution to creditors of the debtor's available non-exempt property, according to ABI. If debts outweigh the value of the assets, whatever is liquidated gets split up among creditors. Chapter 13 is for individuals or sole proprietors. It is designed for someone with regular income whose debts do not exceed certain amounts. It is used to budget some of the debtor's future earnings under a plan through which creditors are paid in full or in part. Chapter 11 is primarily used by corporations. The purpose of Chapter 13 and 11 is to give the debtor a breather from creditors while the individual or company attempts to reorganize and come up with a better, more profitable way of doing business. The average case takes four to seven months to submit and approve a repayment plan.

4. File a Proof of Claim

Check the bankruptcy filing notice to see what the deadline is to file a claim with the bankruptcy court detailing what you are owed and why. Failure to file a claim definitely will eliminate any chance you have of getting paid, says Gershburg, who blogs about bankruptcy topics on his site and on Chapter7New If there is any money left after the bankruptcy proceeding, the trustee appointed by the court will be charged with paying various creditors what's leftover. Proof of claim is a one-page form that you can fill out yourself; you don't need a lawyer, says Ring. You can download this form for free from the US Courts web site; the filing fee is around $20.

Dig Deeper: Ask Inc.: A client of mine just went bankrupt. Now how do I get them to pay me?

5. Get in Line and Wait

Bankruptcy court has a definitive pecking order. Where you fall in the order will determine how likely you are to get any of what you are owed. Secured claims, which include mortgage holders, rank higher than unsecured claims, such as goods sold or services rendered. There are also fees that have to be paid to the trustee and administrators. Schedule A and Schedule B of the bankruptcy petition list secured debts while Schedule E or Schedule D lists unsecured debts. If the debt is secured, you have a stronger leg to stand on. But even if there is a chance you will get your money back, it's typically 10 cents on every dollar owed, Gershburg says.

6. Attend the "341" Creditors Meeting

This is a meeting with the court-appointed trustee, the debtor, and creditors. At this meeting, the debtor explains how things got so bad and what's going to be done about it. Here is where as a creditor you get to ask questions of the debtor. You can object to the repayment or reorganization plan if you feel the debt owed you is not being treated fairly, says Ring. If you believe some type of fraud is being committed, you can make that accusation—if you have proof to back it up.

Dig Deeper: Supreme Court to Confront Alleged Bankruptcy Abuse

7. Review Any Proposed Repayment Plan

For the first 120 days, the debtor has the right to come up with a reorganization plan. If the court-appointed trustee decides the plan is workable, it's sent out to all the creditors for review. For the plan to be approved, the debtor needs to have the consent from more than 50 percent of the total number of creditors and from more than two-thirds of the debt owed. Look at the disclosures to see how the debtor plans on paying each of the creditors, Gershburg says.

8. Follow PACER (Public Access Court Electronic Records)

This allows users to obtain case and docket information from bankruptcy courts online. You can create a user name and password to look up what is essentially public information, says Ring. You can see for yourself what is going on with a bankruptcy filing, bypassing the need for an attorney.

Dig Deeper: Case Study: Was Bankruptcy the Answer?

9. Protect Your Business Upfront

Get a deposit, collateral, or a third-party guarantee from your clients. For instance, an entrepreneur can use a security agreement and a Uniform Commercial Code 1 form to insure his or her receivables. When extending credit to your client, you can negotiate a security agreement, which means in effect you are placing a lien against an asset of the company (e.g., piece of equipment). You can file a UCC-1 form with your state or county. Should that client file bankruptcy you are not guaranteed payment; however, if you have a UCC filing it puts you further ahead on the line of other creditors that are trying to collect.

10. Conduct Credit Checks

Before you go into business with a company do a background check or a credit check if it's a consumer. Ask to see cash-flow statements to make sure everything is fine, suggests Gershburg. Conduct routine credit checks or take note of any behavioral changes among clients or customers. For instance, "you may see payments are coming in slower than usual, so a client who paid on time is now paying you 90 to 120 days past due. This is a major warning sign," he adds. Protect yourself contractually; meaning, draw up terms that specify if accounts go unpaid after 90 days, it will be considered a breach of contract. You can sue and take that client to court immediately.

Dig Deeper: How to Evaluate Your Company's Financial Position

11. Get Paid Early to Avoid Danger

Make it a habit of getting paid on time. In general, a business should not be 60 days in arrears on a major contract. Consider giving clients discounted fees for paying earlier. It is common in many lines of business to offer cash discounts—a reduction in the amount of a bill if it is paid early. For example, 3 percent if paid within 10 days, 2 percent in 30 days, and net regular terms for 60 days. Having a client declare bankruptcy is a risk you take in business, but if you get paid earlier or on time, there won't be so much money outstanding if they do file.

Also, talk to your attorney or accountant about taking a deduction for the bad debt on your taxes. If you miraculously manage to recoup any portion of the money owed, then you can claim it as income later on.