US Bankruptcy and Restructuring Options for Turkish Creditors 2026: Protecting Your Claims

Turkish companies that extend credit to US customers, supply goods to US buyers, or have US business partners face the risk that their US counterparty will file for bankruptcy. The US bankruptcy system is sophisticated and creditor-protective in many respects — but only for creditors who understand the process and take timely action. This guide explains the US bankruptcy framework and what Turkish creditors must do to protect their claims.

US bankruptcy is governed by the federal Bankruptcy Code (Title 11 of the US Code). The most relevant chapters for Turkish creditors are:

The debtor's assets are liquidated by a trustee, and the proceeds are distributed to creditors in order of priority. The debtor receives a discharge of remaining debts. Chapter 7 is used for businesses that are shutting down and individuals.

The debtor (typically a business) continues operating while developing a plan of reorganization to restructure its debts. Chapter 11 is the most complex and significant bankruptcy chapter for Turkish creditors with substantial claims.

Chapter 15 implements the UNCITRAL Model Law on Cross-Border Insolvency and governs cases where a foreign debtor has assets or creditors in the US. Turkish companies that file for insolvency in Turkey may seek recognition of their Turkish proceedings in the US under Chapter 15.

When a US debtor files for bankruptcy, an automatic stay immediately goes into effect. The automatic stay:

• Stops all collection actions against the debtor
• Prohibits enforcement of judgments
• Prevents repossession of property
• Halts pending litigation against the debtor

Impact on Turkish creditors: Turkish creditors who are in the middle of collecting a debt, enforcing a judgment, or pursuing litigation against a US debtor must immediately stop those actions when the debtor files for bankruptcy. Violating the automatic stay can result in sanctions.

Exceptions: The automatic stay does not apply to certain actions, including criminal proceedings, regulatory actions by government agencies, and certain setoff rights.

To participate in a US bankruptcy case and receive any distribution, Turkish creditors must file a Proof of Claim — a formal document asserting the amount and basis of the creditor's claim.

The bankruptcy court sets a "bar date" — the deadline for filing proofs of claim. Missing the bar date can result in the claim being disallowed. Turkish creditors must monitor bankruptcy cases involving their US counterparties and file proofs of claim before the bar date.

• The amount of the claim
• The basis for the claim (contract, invoice, judgment, etc.)
• Supporting documentation (contracts, invoices, correspondence)
• Whether the claim is secured or unsecured

• Secured claims: Claims backed by collateral (liens on property, security interests). Secured creditors have priority over unsecured creditors with respect to their collateral.
• Unsecured claims: Claims not backed by collateral. Turkish trade creditors (suppliers, service providers) typically have unsecured claims.

The Bankruptcy Code establishes a strict priority for distribution of assets:

1. Secured creditors: Paid from their collateral
2. Administrative expenses: Costs of the bankruptcy case, including professional fees
3. Priority unsecured claims: Wages, employee benefits, taxes
4. General unsecured claims: Trade creditors, bondholders, and other unsecured creditors
5. Equity holders: Shareholders receive distributions only after all creditors are paid in full

In most Chapter 11 cases, general unsecured creditors receive less than full recovery — often cents on the dollar. Turkish creditors should assess their likely recovery before investing significant resources in a bankruptcy case.

In Chapter 11, the debtor typically continues operating as a "debtor in possession" (DIP) with the powers of a bankruptcy trustee. The DIP can continue to operate the business, enter into contracts, and use cash collateral (subject to court approval).

In large Chapter 11 cases, the US Trustee appoints an Official Committee of Unsecured Creditors. The committee represents the interests of all unsecured creditors and has the right to participate in the case, review financial information, and negotiate the plan of reorganization. Turkish creditors with large claims may seek appointment to the committee.

The debtor (or other parties) proposes a plan of reorganization that specifies how creditors will be treated. Key plan provisions:

• Classification of claims
• Treatment of each class (payment in full, partial payment, equity conversion)
• Voting requirements

Creditors vote on the plan of reorganization. A class of creditors accepts the plan if at least two-thirds in amount and more than one-half in number of voting creditors vote to accept. Turkish creditors should carefully evaluate plan terms before voting.

The bankruptcy court confirms the plan if it meets the requirements of the Bankruptcy Code, including the "best interests" test (creditors receive at least as much as they would in Chapter 7 liquidation) and the "feasibility" test (the reorganized debtor can perform its obligations under the plan).

Turkish creditors who received payments from a US debtor in the 90 days before bankruptcy (or one year for insiders) may face preference claims — demands to return those payments to the bankruptcy estate. Turkish creditors should:

• Maintain records of all payments received from US debtors
• Assess preference exposure when a US customer files for bankruptcy
• Evaluate defenses (ordinary course of business, new value)

If a Turkish company files for insolvency in Turkey and has US assets or US creditors, the Turkish insolvency representative can seek recognition of the Turkish proceedings in the US under Chapter 15. Recognition provides:

• Automatic stay of US proceedings
• Ability to collect and administer US assets
• Cooperation between US and Turkish courts

Our bankruptcy and restructuring attorneys represent Turkish creditors in US bankruptcy cases — from filing proofs of claim and participating in creditors' committees through plan negotiation and confirmation. We help Turkish creditors protect their claims and maximize recoveries in US bankruptcy proceedings.

This article is for informational purposes only and does not constitute legal advice. Bankruptcy law is complex and time-sensitive; please consult qualified bankruptcy counsel immediately if a US debtor files for bankruptcy.