As a vendor, your product is what makes your business work. It is the most valuable piece of your whole operation. In a recent blog, highlighting what to do when a customer what to when a customer files for bankruptcy, we mentioned what to do if your goods were in transit, but what should you do if your product has already been delivered?
How to reclaim your product
The U.S. Bankruptcy code provides language that, under certain circumstances, can allow you to reclaim products after they have been delivered to an insolvent buyer. The code states that you may reclaim goods that were received by the debtor within 45 days of the debtor filling for bankruptcy, assuming those goods were sold in the course of ordinary business. In order to reclaim the goods, you make a formal demand for them within 45 days of the product being received or within 20 days of the bankruptcy filing. While you technically can make this demand orally, having this in writing is a safer alternative and can provide proof later on.
It is important to note that the customer must still be in possession of the product. If they have already sold or used the product, you no longer have any reclamation rights. The burden of proof, in regards to possession of the product, falls on you though. You must be able to prove that the product was in the customers possession at the time the demand was sent.
If a valid reclamation claim is made, the customer must return the product. If they subsequently sell or use the product, you may be given an administrative claim in the bankruptcy proceedings for the value of the goods in question.
It should be noted that all goods sold to the customer within 20 days of their bankruptcy fillings are given an administrative expense priority claim in the bankruptcy proceedings. Essentially giving those vendors priority over others. In this case, no proof of possession is necessary, just proof of a formal reclamation demand.
Dealing with bankruptcy is a natural part of being a vendor, but understanding the law and staying up to date can save you from unnecessary loses. As always, if you believe this situation applies to you, we recommend you seek the advice of a lawyer on how to proceed.