What If Your Business Customer Can't Pay You

You sold merchandise or equipment to a customer. Now you hear that customer has declared bankruptcy. Can you get back the items you sold? What do you do? You do have some rights and some recourse to get the goods back, both before and after the customer declares bankruptcy.

If a customer becomes insolvent (that is, the company cannot pay its bills), you can get back the items you sold that customer, under a process of "reclamation rights." You can exercise your reclamation rights against that property by going through a reclamation process within a prescribed period of time.

Reclaiming Before Bankruptcy
Reclamation before bankruptcy falls under the Uniform Commercial Code. You must issue a demand letter within 10 days after the customer receives the goods.

Reclaiming After Bankruptcy
After bankruptcy, the U.S. Bankruptcy Code controls the process of reclamation. The 2005 bankruptcy law (the Bankruptcy Abuse Prevention and Consumer Protection Act) allows you 45 days to demand the return of the item after the customer receives the goods.

Check with a bankruptcy attorney or an attorney who deals with commercial issues for more information about this process and to get help writing the demand letter.