Do have any recourse regarding a refund if a company is filing for bankruptcy?

I own a small business and we recently paid a manufacturer (knitting company) in another state to knit some products for us. The products were not finished (nor knit to the standards described by their company or produced during sample production). When we requested a partial refund we were told they are going bankrupt and cannot offer any sort of refund. They then sent us a batch of unfinished goods. Do we have any recourse?

Asked on November 29, 2015 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

You certainly can try filing a lawsuit against them, but be advised that if they have or do file for bankruptcy, your case will be dismissed, all other collections efforts stayed, and the only compensation you will get (if any) will be what other unsecured creditors get through the bankruptcy process--which may be (if anything) from pennies to dimes on the dollar. Even if they don't actually file for bankruptcy, if the company is an LLC or corporation and is insovlvent (less income and assets than its debts), you are unlikely to recover your money. It may not be worthwhile to take action. (If it's not an LLC or corporation, you can try suing the owner[s] personally.)


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