A trade creditor's setoff rights in bankruptcy: no slam dunk.(CREDIT COLUMN)(USAT'S Claim Against Delphi Corp.)(Column)

When a trade creditor has shipped goods or provided services to a financially distressed company that files bankruptcy, the creditor may be left with an unsecured claim that ranks at the bottom of the claims priority totem pole and enjoys slim prospects for payment. However, the creditor could significantly enhance its recovery when the debtor and creditor do business together and have accounts payable to each other that give rise to mutual claims and the right of setoff.

Suppose a debtor owes a trade creditor $100,000, the creditor owes the debtor $100,000, and the debtor then files bankruptcy. A creditor exercising setoff rights can settle up its claim against ...