What is our best recourse if our we are a supplier to a business which has not paid us and might declare bankruptcy?

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What is our best recourse if our we are a supplier to a business which has not paid us and might declare bankruptcy?

We own the merchandise and we are responsible for any breakage, stolen items, etc. The other business just sells the items and gives us a percentage of the sales and they keep the rest. They are now in financial troubles and haven’t paid us our share for 4 months. Would this be considered theft and a criminal case or should I get a lawyer for a civil case. They have also been talking about going bankrupt.

Asked on February 6, 2013 under Business Law, Nebraska

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

First of all, this company broke no laws here, at least unless they took this merchandise from you with the intention of never paying for it. Financial trouble is not  criminal matter. However, you do a a cause of action for a civil suit. Unfortunately, if this company files for bankruptcy, you will not be able to take collection action against it. Something known as the "automatic stay" will prevent that. You will have to go into the pool of other creditors of this debtor and be paid at accordingly (if at all) as an "unsecured creditor". That having been said, if you sue and win a judgement before bankruptcy is filed, you will at least become what is known as a "secured creditor" and will be paid out before any unsecured creditors. Bottom line, you are in a difficult position and should prepare yourself for getting little back by way of repayment.


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