What Happens To My Product When A Business Goes Bankrupt?

Edrie Pfeiffer
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Edrie Pfeiffer, Bankruptcy & Divorce Attorney
Posted on Aug 04, 2017

There have been a lot of news articles lately about businesses that are filing bankruptcy. Payless Shoes, Gymboree, True Religion, and Alfred Angelo have all recently closed down, causing all kinds of problems for their customers. "How is this legal?" you might ask. You paid good money for what you purchased, and you deserve to have your rightful claim on the products or service!

Just as an individual may go through a bankruptcy, businesses can also file bankruptcy. Even government units, such as a city or state, can file a bankruptcy. Like an individual, businesses can basically file two types of bankruptcy. There is the business reorganization, where the business wants to restructure the company but continue to operate. This is a Chapter 11 bankruptcy. You may have heard of this type of bankruptcy since several airlines, car manufactories and our current President have used this process. A Chapter 11 bankruptcy is somewhat similar to a Chapter 13 bankruptcy in that the company is proposing some method of paying something to its creditors. The second type of bankruptcy that a business can file is a Chapter 7 bankruptcy. This is very similar to the Chapter 7 bankruptcy that an individual would file. A Chapter 7 bankruptcy is a liquidation bankruptcy. Unlike an individual that files a Chapter 7 bankruptcy, the goal of a business Chapter 7 is not to discharge debts but to go through an orderly liquidation process and to pay the debts from the proceeds of the liquidation in an order that is determined by the bankruptcy laws.

One of the biggest problems that you, as an individual, could face with a business bankruptcy is what happens when the business owes you something. There have been horror stories about business that have shut their doors and filed for bankruptcy, leaving customers and employees in the lurch. Very recently there was a wedding gown store, Alfred Angelo, that closed its doors with dozens of brides still waiting for their wedding dress. You may have heard about the chaos that this created! Dozens of brides were left with only a short time before their wedding and no dress! There have also been cases of dry cleaners closing down and the customers being unable to access their clothing. Employees may also report to work one day and find the doors closed and they are still owed wages. I was at a hearing one time, where a company had filed a Chapter 7 bankruptcy. They not only owed their employees their last pay check, but previous pay checks had bounced. Imagine the hardship that created for those employees, who have no doubt been working diligently to provide for their livelihood!

              Alfred Angelo Bankruptcy Angers Brides 

If you are faced with a business that has filed a bankruptcy and you are owed money or a product from the company, you will need to watch the notices that you receive in the mail very closely. You may be required to file a claim with the Court for your losses. There will be strict deadlines for this, and you may have to provide evidence of your claim. If you are owed a product, such as a wedding dress, or clothing that you left to be cleaned, the Court may set up a time where individuals can come and claim their belongings. Again, you may have to prove that you are entitled to the items. If it is a liquidation bankruptcy, there will normally be a time set for an auction of the assets of the company. You may have the opportunity to buy some of the assets at a reasonable price.

Bankruptcy can be a stressful time for anyone involved, but when the bankruptcy is for a company that you had depended on, it can be extremely stressful. In some cases, there will be no opportunity for you to recoup your property. Unfortunately in those cases, you will have to chalk it up to a life lesson and realize that you will have to accept the losses.