When a debtor files for bankruptcy, smaller businesses have some recourse — a “reclamation demand”. A reclamation allows the creditor to demand goods shipped to a debtor be returned IF the debtor files for Chapter 11 within a specified time period of when the goods were received.
If the goods can’t be returned, the seller’s unsecured claim may be converted into an “administrative expense priority claim”. This move gives the claim a higher priority than ordinary unsecured creditors.
Businesses don’t have to wait for the bankruptcy filing in order to file a reclamation demand. It can be filed if evidence is presented that the customer is officially insolvent.
