Bankruptcy creditors have rights in a customer’s bankruptcy. Some of those rights are provided in the “four corners” of the Bankruptcy Code. Some of those rights arise out of a combination of the Bankruptcy Code and rights that exist under state law. Finally, some of those rights are created by orders entered by the Bankruptcy Court.
All rights of a bankruptcy creditor disappear over time. Thinking that your company, as a bankruptcy creditor, has no rights can result in a loss of the rights it once had simply because the rights are not exercised or preserved.
Eight Fundamental Rights of a Bankruptcy Creditor
In overview, the following Bankruptcy Creditor Rights most often are available and asserted in a commercial bankruptcy:
- Right to an “administrative expense” priority claim under Section 503(b)(9) of the Bankruptcy Code for goods received by the bankrupt customer within a 20 day period prior to the bankruptcy filing.
- Right to assert a “reclamation claim” for goods delivered to an insolvent customer within 45 days prior to the bankruptcy filing;
- Right to assert claims as a “lienholder” based on state law grants of special rights to certain types of suppliers;
- Right to compel your customer to make a decision to either accept or reject an ongoing, pre-petition contract governing your company’s provision of goods and services and, if the contract is accepted to either be paid all amounts necessary to cure defaults under the contract or to receive adequate assurances that such amounts will be paid;
- IF YOUR COMPANY HAS NO ONGOING CONTRACTS WITH THE CUSTOMER, the right to negotiate the terms under which you will continue to provide goods and services to the customer post-bankruptcy;
- Right to be paid an amounts necessary to cure any defaults under a contract which is assumed by the bankrupt customer after the bankruptcy filing;
- Rights granted under various “first day motions”, which might include a right to payment for pre-petition amounts as an ‘essential supplier” or “critical vendor”; and
- Right to assert a unsecured claim for pre-petition amounts due.
The list above is not exhaustive and no list truly can be because every bankruptcy and a bankruptcy creditor’s relationship with the debtor has unique elements.
Start By Asking The Right Questions
The process of determining and protecting your company’s rights as a creditor in a customer bankruptcy starts with asking the right questions. In the article “10 Questions a Bankruptcy Creditor Must Ask and Answer ASAP” we list these questions.