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Many companies (call them D for Defendant) require monetary deposits from consumers (C for Claimants), before D undertakes time and effort to order the product. C is an unsecured creditor, and ignorant on consumer law.

Don't just answer that D shouldn't buy from companies that require down payments — this is impractical.

But after C pays their deposit, if D goes bankrupt, then C can't recoup their deposit — because D has little to no assets. Or C ranks so far behind D's secured creditors that C won't be restituted. Or the deposit is too teensy to warrant paying fees to file a claim, even in Small Claims Court!

Presume that the company has NOT set up a separate escrow or trust account to hold customer deposits, and to protect them from a bankruptcy.

  1. How could C have protected C's deposit? Don't just answer that C should buy from and seek trustworthy companies. Even big box retailers can bankrupt!

  2. What are securer alternatives to deposits? I have heard of "letters of credit" before, but can they assist me here? Can I ask my bank to issue a letter of credit to the company's bank?

This fact pattern has happened 3 times in my family. In my grandpa's case (call him G), D was a medical equipment company. For my aunt A, D = a mattress company. For my mom M, D = a furniture company.

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    Use credit cards.
    – littleadv
    Mar 29, 2022 at 6:50

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If we take your constraints as a given-- that you have to do business with companies that require a down payment and that you have to be able to do business with companies that are close to bankruptcy (note that being large has nothing to do with being financially stable)-- you probably cannot change the structure of the contract to provide protection. If you're dealing with large businesses and sums small enough that it isn't even worth suing in small claims court, it is highly unlikely that the business will be willing to have its lawyers draft changes to their boilerplate contract language to give you more protection. Plus, if companies are asking for a down payment it's generally because they want to make use of that money immediately to do things like purchasing supplies rather than getting credit from their suppliers or selling bonds to raise capital. Anything you would want to do that would protect your down payment would tend to make it difficult for the company to use your down payment in this way which would defeat the purpose of the down payment.

As was mentioned when you asked the same question on the law stack, if you put the down payment on a credit card, depending on the time frames involved and the type of bankruptcy, there is a decent chance that you could dispute the credit card charge for the down payment once it became clear that you wouldn't be receiving the product. It's not foolproof because the time between making the down payment and bankruptcy could exceed the window you have to dispute a charge, the company might initially enter bankruptcy in order to restructure rather than to go out of business and might oppose your dispute, etc. But for most consumer transactions you'd have a pretty decent chance of getting your money back from the credit card company.

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