Bankruptcy Rights of Suppliers

March 23, 2009 Supply & Demand Chain Executive

© April 2009, Supply & Demand Chain Executive

Whether you are a supplier of goods or an operator trying to manage cash flow and pay your creditors in these times of tight credit throughout the domestic and global economy, understanding the rights of suppliers in bankruptcy and other insolvency situations is important for your business. This article will address a number of the basic rights and remedies that suppliers have when operators are unable to pay in a timely manner and resort to filing for bankruptcy or other available relief from the credit crunch. Before getting into the supplier’s rights and remedies, some bankruptcy basics will be addressed.

Bankruptcy Primer

Bankruptcy is generally understood as a mechanism by which business operators can seek relief through the courts from the pressures of day-to-day stress placed upon the business by demands of creditors and others to be paid. Bankruptcy is a remedy for “debtors” (those who owe money to others called “creditors”), which is governed by a federal law know as the United States Bankruptcy Code or simply the “Bankruptcy Code.” This law can be found at 11 U.S.C. §§ 101 et seq. Bankruptcy relief is available in three basic scenarios: (1) those who wish to simply liquidate can do so under Chapter 7 of the Bankruptcy Code; (2) businesses and certain individuals who wish to restructure their debts and try to stay in business can reorganize under Chapter 11 of the Bankruptcy Code; and, (3) individuals with jobs can restructure and repay their debts over time through a wage earner plan under Chapter 13 of the Bankruptcy Code.

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