Maximizing 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...