As a buyer in the ordinary course of business, what happens if the seller goes bankrupt?

The correct answer is that the buyer retains the item if properly purchased. Under the Uniform Commercial Code (UCC), a buyer in the ordinary course of business is someone who buys goods from a seller who is engaged in selling goods of that kind, and does so in good faith without knowledge that the sale is in violation of any ownership rights or security interests.

When the seller goes bankrupt, the interests of the seller's creditors become relevant. However, if the buyer has purchased the goods in a transaction that is considered ordinary course under UCC provisions, they take free of any security interests the seller might have had in the goods at the time of purchase. This means that as long as the transaction meets the requirements of being in the ordinary course of business and was done in good faith, the buyer has a rightful claim to the goods and does not need to return them to the seller's bankruptcy estate.

This principle serves to encourage commerce and protect buyers who are acting within the norms of trade. The buyer's actions are typically protected because the law prioritizes ensuring that buyers can acquire and keep ownership of goods purchased from retailers and merchants, even if those sellers later face financial difficulties or bankruptcy.