Your Good Customer Just Filed Bankruptcy. Now What?
June 2009
By: Thomas W. Coffey
In this economic cycle, more and more businesses are seeking bankruptcy protection. Healthy companies that have thrived through this recession are likely to see a customer or vendor enter bankruptcy. In the hopes of providing a quick and useful summary of “action items” to protect your business if this happens to you, we have prepared this simple summary checklist. On the day you learn that your customer has filed, you should:
1. Stop active collection efforts. When the Debtor files for bankruptcy protection, an “automatic stay” is invoked. This means all creditors must cease trying to collect on debts owed prior to the bankruptcy filing. Even phone calls aimed at collecting old debts are not permitted. In some circumstances, you can seek relief from the automatic stay; otherwise, you must attempt to get paid exclusively through the bankruptcy process.
2. Check recent shipping activity and identify all shipments that occurred in the 45 days prior to the bankruptcy filing. Gather as much detail as possible. You may have rights to reclamation (i.e., get your goods back) or other special rights associated with goods that you recently shipped to the Debtor. You need to act quickly to fully assert and protect your rights. First, you need to make a timely written demand for reclamation (in most cases, within 20 days of the bankruptcy filing) and if warranted, follow up with an action in bankruptcy court to repossess your goods.
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