What Happens If A Manufacturer Goes Out Of Business While A Defective Product Claim Is Pending?

When a manufacturer goes out of business while a defective product claim is pending, consumers may face challenges in obtaining compensation or repairs. However, consumer protection laws and legal avenues may still provide ways to recover damages even in such situations.

Steps to Take If A Manufacturer Goes Out Of Business During A Defective Product Claim

1. Check for Manufacturer’s Insurance

Even if a company goes out of business, they may have had liability insurance in place. Consumers can file claims against the manufacturer’s insurance policy to seek compensation for defective product-related damages.

2. File a Claim with the Bankruptcy Court

If the manufacturer has declared bankruptcy, consumers can file a claim as a creditor in the bankruptcy proceedings. While this may not guarantee full compensation, it allows consumers to seek part of the remaining assets of the bankrupt company.

3. Pursue the Retailer or Seller

In some cases, consumers can hold the retailer or seller responsible for the defective product, especially if there are implied warranties. The seller may be liable for offering a defective product, and consumers may be able to seek compensation from them instead of the manufacturer.

4. Check for Warranty Coverage from Third Parties

Some warranties or extended service plans are backed by third-party companies, not the manufacturer. If the product was sold with an extended warranty or insurance, consumers may still be able to claim repairs or replacement through these third parties.

5. Product Liability Lawsuits Against Other Entities

Depending on the product, consumers may also be able to file a lawsuit against other parties involved in the production or distribution chain, such as component manufacturers, distributors, or even importers, if they contributed to the product defect.

6. Consult Legal Experts

Given the complexities of dealing with a manufacturer going out of business, consulting a lawyer is advisable. Legal experts can help navigate the bankruptcy process, identify responsible parties, and build a case for compensation under consumer protection laws.

Example

A consumer purchases a kitchen appliance that later proves to be defective, causing property damage. Before the claim is settled, the manufacturer files for bankruptcy. The consumer can file a claim in the bankruptcy court and also approach the retailer or seek compensation from the manufacturer’s insurance if applicable. If the retailer or other responsible parties are still operational, the consumer may still recover damages under product liability or warranty laws.

Consumers can still pursue compensation through alternative legal avenues such as bankruptcy claims, insurance, or third-party warranties if a manufacturer goes out of business during a defective product claim.