Whether you read about it in the paper, hear it on the news or get the word from a colleague, it is always a shock to learn that a valued customer or supplier has filed for bankruptcy.  Aside from cursing your misfortune, what do you do next? There are a number of steps you can take to potentially improve your ultimate recovery. Here is our Top 10 List of suggested actions and reactions.

  1. Spread the Word  — Make sure that all relevant segments of your organization are aware of the filing.
  2. Get the Facts — Assemble all documents necessary to fully understand the nature of your business relationship with the debtor.
  3. Take a Breath — You may wish to stop shipments in transit, as well as stopping any pending payments that are scheduled to the debtor, pending a decision as to whether such payments can be used as an offset or recoupment.
  4. Cease Fire — You must immediately stop litigation or other any collection activity against the debtor.
  5. Talk to an Expert — Contact legal counsel to get detailed advice regarding your rights and responsibilities.
  6. Talk to the Debtor — Find out what the debtor plans to do with respect to your business relationship, including whether they intend to treat you as a “critical vendor” or “essential supplier.”
  7. Handle “20-Day Claims” — Obligations for goods received by the debtor within 20 days of filing may be eligible for priority claim treatment and prompt payment.  Identify such obligations and press the debtor on its intentions regarding payment.
  8. Make a Reclamation Demand — Goods received within 45 days of filing are potentially subject to reclamation. You should identify such goods and make a written demand for reclamation.
  9. Set Future Business Terms — Depending on your contract, you may be permitted to change sales terms for future deliveries. You may wish to consider insisting on “cash in advance” or “cash on delivery” payment terms, at least at the outset.
  10. Prepare to Defend — To prepare for possible “preference”  or other avoidance action claims, you should gather information regarding sales, deliveries and payments during at least a one-year period prior to the filing.