A parts distributor in Carlsbad opens its email on a Tuesday in September to a notice from a Houston claims agent. Its largest customer, a Permian Basin operator, filed Chapter 11 overnight owing $210,000, with two trucks of valves already loaded for its leases.
Unpaid suppliers have more tools than most realize, and several expire within weeks. The one owners fear most, a suit over money already collected, can come two years later.
What can a New Mexico supplier do the day its customer files Chapter 11?
The automatic stay in 11 U.S.C. § 362(a)(6) bars “any act to collect, assess, or recover a claim against the debtor” that arose before the case. Hauling stock off the customer’s yard (§ 362(a)(3)) or netting a credit memo against the balance (§ 362(a)(7)) needs court permission too.
New orders are different. Unless a contract obligates you to sell on credit, you can insist on cash; New Mexico’s commercial code lets a seller who learns of insolvency “refuse delivery except for cash” (NMSA 1978, § 55-2-702(1)). Postpetition shipments on credit are generally an administrative expense under § 503(b)(1)(A), as recognized in In re Rio Valley Motors Co., No. 11-06-11866 SS (Bankr. D.N.M. Mar. 24, 2008).
A written supply agreement cannot be ended just because the customer filed (§ 365(e)(1)). The debtor may decide by confirmation whether to keep it (§ 365(d)(2)), and keeping it means curing the old default (§ 365(b)(1)).
Which unpaid invoices qualify for a section 503(b)(9) claim?
Section 503(b)(9) gives administrative priority to “the value of any goods received by the debtor within 20 days before the date of commencement of a case,” if sold in the ordinary course of the debtor’s business. A standard Chapter 11 plan must pay that claim in cash on the effective date unless the holder agrees otherwise (§ 1129(a)(9)(A)).
“Received” means physical possession. In In re World Imports, Ltd., 862 F.3d 338 (3d Cir. 2017), furniture shipped from China more than 20 days out but reached the debtor inside the window, and the court held that receipt “requires physical possession by the buyer or his agent.” For a Carlsbad distributor, arrival at the yard or well site controls. I found no Tenth Circuit or BAP decision on the point, and Rio Valley applied § 503(b)(9) without defining it, so a New Mexico judge would likely start from World Imports.
Services are excluded. In re Goody’s Family Clothing, Inc., 401 B.R. 131 (Bankr. D. Del. 2009), denied priority to a vendor that ticketed garments. For mixed invoices, In re Circuit City Stores, Inc., 416 B.R. 531 (Bankr. E.D. Va. 2009), applied a predominant-purpose test, bad news for a Los Alamos machine shop billing parts and labor on one line. No demand letter is needed (§ 546(c)(2)), but the claim must be asserted by the court’s deadline.
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Is a reclamation demand under section 546(c) worth sending?
Section 546(c)(1) preserves a seller’s right to reclaim goods an insolvent buyer received on credit within 45 days before the filing, on a written demand “not later than 45 days after the date of receipt” or, if that period runs past the petition, “not later than 20 days after the date of commencement of the case.” The clauses can be read two ways, so I treat day 20 after the petition as the last safe day.
The same sentence makes the right “subject to the prior rights of a holder of a security interest in such goods,” and in my experience a customer big enough to owe $200,000 has a lender with an inventory lien. In re Pilgrim’s Pride Corp., No. 08-45664 (Bankr. N.D. Tex. Nov. 10, 2009), held reclamation claims “subordinate to the liens held by Debtors’ pre-petition lenders” and worth only any surplus. Send it anyway as cheap leverage.
Oilfield suppliers may have a lien on the leasehold under the Oil and Gas Lien Act (NMSA 1978, § 70-4-1), claimed within 180 or 210 days after the last materials (§ 70-4-4). Sections 362(b)(3) and 546(b) allow perfection where state law lets it relate back, a question for New Mexico counsel.
Can my company become a critical vendor, and what does the trade agreement require?
The Code never says “critical vendor.” In In re Kmart Corp., 359 F.3d 866 (7th Cir. 2004), about 2,330 suppliers had been paid roughly $300 million. The Seventh Circuit held that § 105(a) is a power “to implement rather than override” the Code and called § 363(b)(1) “more promising,” but demanded proof that vendors would otherwise stop selling and other creditors would be no worse off. I found no Tenth Circuit ruling, so New Mexico courts would likely follow Kmart.
Marelli Automotive Lighting USA LLC, which filed in Delaware on June 11, 2025 (No. 25-11034), asked on day one to pay four groups of old vendor invoices: overseas suppliers, holders of lien rights, § 503(b)(9) goods sellers and a critical-vendor list. Payment comes with a trade agreement; proposed procedures posted by the Southern District of Texas would require “the best terms” the vendor gave the debtor within 120 days before filing, and repayment if it stops shipping. Weigh cash now on part of the old balance against new credit on the terms that left you holding $210,000.
Do I need a Delaware or Houston lawyer for a proof of claim in a Chapter 11 case?
Not for the claim itself. Bankruptcy Rule 9010(a) lets a creditor “perform any act not constituting the practice of law” through an authorized agent. Delaware Local Rule 9010-1(e)(iii) allows a proof of claim “pro se or through out of state counsel,” though other appearances need Delaware counsel (Rule 9010-1(c)). The Southern District of Texas pro hac vice form does not ask for local counsel.
Official Form 410 says not to use it for administrative expenses, but claims-agent forms in many large cases add a § 503(b)(9) box. An undisputed scheduled claim is prima facie valid (Rule 3003(b)(1)), but schedules rarely split out 20-day goods, so I file anyway. The court sets the bar date (Rule 3003(c)(3)); the Southern District of Texas complex-case procedures default to 90 days after the first date set for the creditors’ meeting.
In New Mexico, NM LBR 1074-1 requires an LLC or corporation to use an attorney for nearly everything but proofs of claim, so a § 503(b)(9) motion in Albuquerque needs counsel. I found no D.N.M. rule or form for such requests. In the smaller Chapter 11 and Subchapter V cases I follow in the District of New Mexico, first-day papers seldom pay vendors, and § 1191(e) lets a Subchapter V cramdown plan pay administrative claims over time.
What can a Carlsbad oilfield parts distributor recover, and what can be clawed back?
Illustration only. The customer files in the Southern District of Texas on Tuesday, September 15, 2026. Parts physically received from August 26 through September 14, worth $60,000, support a § 503(b)(9) claim; the other $150,000 is unsecured and paid at the plan’s rate. The reclamation demand is due Monday, October 5. With the creditors’ meeting first set for October 14, the default bar date is January 12, 2027.
The distributor also cashed $15,000 checks on July 10, August 7 and August 28, inside the 90-day look-back that began June 17. Section 547(b) can recover them absent a defense. Payments matching past practice or industry terms are safe (§ 547(c)(2)), and the firm’s post on the ordinary-course defense in the Tenth Circuit covers collection pressure. Under § 547(c)(4), later unpaid deliveries offset earlier payments, and $52,000 shipped after August 28 went unpaid.
Does paying the $60,000 claim later erase that new value? In re Friedman’s Inc., 738 F.3d 547 (3d Cir. 2013), held a postpetition transfer “does not affect the new value defense,” and Auriga Polymers Inc. v. PMCM2, LLC, No. 20-14647 (11th Cir. July 18, 2022), applied that to § 503(b)(9) payments. I found no Tenth Circuit decision. A non-insider trade-debt suit under $31,425 must be filed where the defendant resides (28 U.S.C. § 1409(b), as adjusted), but at $45,000 this distributor can be sued in Houston, within two years (§ 546(a)).
| When | What the supplier does | Authority | Carlsbad example |
|---|---|---|---|
| Day of filing | Stop open credit and read the first-day motions | §§ 362(a), 503(b)(9) | Sept. 15, 2026 |
| 20 days after the petition | Written reclamation demand | § 546(c)(1) | Oct. 5, 2026 |
| Trade agreement offered | Weigh the payment against new credit terms | Kmart; first-day order | Set by the debtor |
| Bar date | Proof of claim stating the § 503(b)(9) amount | Rule 3003(c)(3) | Jan. 12, 2027 |
| Plan vote | Ballot on the unsecured claim | §§ 1129(a)(9)(A), 1191(e) | Set by the court |
| Up to 2 years after filing | Answer preference demands with payment history | §§ 546(a), 547(c) | By Sept. 15, 2028 |
Frequently Asked Questions
Can I refuse to ship to a customer that has filed Chapter 11?
If no contract requires you to sell, yes, and you can demand cash in advance. A supply contract is different, so get advice before you stop performing one.
Is a proof of claim required if my invoice is on the debtor’s schedules?
Not always, since an undisputed scheduled claim is prima facie valid. Schedules seldom separate 20-day goods, though, so filing is safer.
Does a 503(b)(9) claim cover freight, labor or services?
Only the value of goods. Courts use the UCC definition, and some apply a predominant-purpose test to mixed invoices.
If my business is named a critical vendor, is the payment safe?
Only while you keep shipping on the agreed terms. The proposed Southern District of Texas procedures would make a paid vendor that stops shipping repay it.
Can a trustee recover small preference payments from a New Mexico supplier?
Transfers totaling less than $8,575 cannot be avoided in a case of mainly business debts (§ 547(c)(9), as adjusted April 1, 2025). A trade-debt suit under $31,425 must be filed where your company resides, usually the District of New Mexico.
How North Star Law Firm Can Help
North Star Law Firm represents New Mexico suppliers in Chapter 11 cases, including Subchapter V cases in the District of New Mexico, and answers clawback demands through its preference defense work.
Phillip Zagotti, JD/CPA, is admitted to the U.S. District Court and Bankruptcy Court for the District of New Mexico and represents taxpayers before the IRS and the U.S. Tax Court. He is also admitted in the Southern District of Texas, where many Permian Basin operators file. The firm works alongside New Mexico-licensed counsel on state-law questions. If a customer’s bankruptcy notice just landed on your desk, contact North Star Law Firm.