When a Customer Files For Bankruptcy – Part 1

If a customer files for bankruptcy, will you recover only pennies on the dollar, or, can you collect the full amount owed?  This question weighs on the minds of vendors and services providers when they receive that fateful notice, typically from the bankruptcy court, that a customer has filed for bankruptcy.  Now, let’s try to answer it.  First, ask yourself:

•    did you sell “goods” (rather than only services)?  And,

•    did the customer buy the goods from you in the ordinary course of the customer’s business?  And,

•    did the customer receive the goods within 20 days before the bankruptcy filing?

If you answer “yes” to these questions, and if you have not missed the deadline to file a proof of claim, you may be entitled to recover the entire value of the goods you sold.  If there is not enough money to pay your claim, you at least may be paid before other, “general unsecured” creditors.

The next time you receive a bankruptcy notice for a customer, just remember: you may be able to recover some or all of your claim.