Maximing the Value of Your Bankruptcy Claims
It is not uncommon these days for vendors, suppliers and other trade creditors to find regular customers filing for bankruptcy protection. Sometimes a trade customer’s bankruptcy filing comes as a surprise, but often the creditor will have heard rumors or even been told outright of an impending bankruptcy filing.
First, what can you do if you have recently sold goods to a trade customer who is now a debtor in bankruptcy? Amendments to the Bankruptcy Code enacted in 2005 give priority “administrative” status to the claims of unsecured trade creditors based on delivery of goods shipped to the debtor within the 20 day period prior to the bankruptcy filing date. In theory, this is a big advantage to the trade creditor who can use its recent sales to the debtor to jump to the head of the line and be paid with priority status. Unfortunately, however, courts generally conclude that these so-called “503(b)(9)” claims need not be paid any earlier than other claims, which leaves trade creditors waiting until the end of the case for payment, and without interest to boot! Not a happy prospect for an unsecured creditor! Still, this can sometimes be a trade creditor’s best hope for full payment.
What if you learn of a customer’s imminent bankruptcy filing in advance? Should you cancel the customer’s open orders? Not necessarily, but, if possible, there may be an advantage to delaying shipment until after the bankruptcy filing date. This is because, unlike the 503(b)(9) administrative claims based on the debtor’s receipt of goods within the 20 days prior to the bankruptcy filing, claims based on the sale and/or delivery of goods in the ordinary course of business after the bankruptcy filing date are also entitled to priority as an administrative expense, but are typically paid in the ordinary course of business by the debtor – meaning you get paid sooner – not at the end of the bankruptcy case like a 503(b)(9) claim.
Finally, bankruptcy and creditor law provides other rights, such as the right to actually reclaim the goods sold to a debtor in bankruptcy. These rights, however, are not self-executing. If you want to take advantage of them, you need to take action. And in each case, and in each court, the procedure for enforcing your rights may be different.