diff --git a/daemon/peer.c b/daemon/peer.c
index 5572006bb..c4dd4d83f 100644
--- a/daemon/peer.c
+++ b/daemon/peer.c
@@ -313,20 +313,18 @@ static void peer_disconnect(struct io_conn *conn, struct peer *peer)
 	}
 
 	/* FIXME: Try to reconnect. */
-	if (peer->cond == PEER_CLOSING
-	    || peer->cond == PEER_CLOSED)
+	if (peer->cond == PEER_CLOSED)
 		return;
 
-	state(peer, peer, CMD_CLOSE, NULL, &outpkt, &broadcast);
-	/* Can't send packet, so ignore it. */
-	tal_free(outpkt);
+	state(peer, peer, INPUT_CONNECTION_LOST, NULL, &outpkt, &broadcast);
+	assert(!outpkt);
 
 	if (broadcast) {
 		struct sha256_double txid;
 
 		bitcoin_txid(broadcast, &txid);
 		/* FIXME: log_struct */
-		log_debug(peer->log, "CMD_CLOSE: tx %02x%02x%02x%02x...",
+		log_debug(peer->log, "INPUT_CONN_LOST: tx %02x%02x%02x%02x...",
 			  txid.sha.u.u8[0], txid.sha.u.u8[1],
 			  txid.sha.u.u8[2], txid.sha.u.u8[3]);
 		bitcoind_send_tx(peer->dstate, broadcast);
@@ -940,7 +938,9 @@ bool peer_watch_our_htlc_outputs(struct peer *peer,
 				 enum state_input tothem_spent,
 				 enum state_input tothem_timeout)
 {
-	FIXME_STUB(peer);
+	if (committed_to_htlcs(peer))
+		FIXME_STUB(peer);
+	return false;
 }
 bool peer_watch_their_htlc_outputs(struct peer *peer,
 				   const struct bitcoin_event *tx,
diff --git a/daemon/test/test.sh b/daemon/test/test.sh
index 62756e9cc..9270435d3 100755
--- a/daemon/test/test.sh
+++ b/daemon/test/test.sh
@@ -192,7 +192,7 @@ if [ -n "$TIMEOUT_ANCHOR" ]; then
     sleep 2
 
     # It should send out commit tx.
-    lcli1 getpeers | $FGREP -w STATE_CLOSE_WAIT_CLOSE_OURCOMMIT
+    lcli1 getpeers | $FGREP -w STATE_CLOSE_WAIT_OURCOMMIT
 
     # Generate a block (should include commit tx)
     check_tx_spend
@@ -212,7 +212,7 @@ if [ -n "$TIMEOUT_ANCHOR" ]; then
     lcli1 dev-mocktime $TIME
     sleep 2
     
-    lcli1 getpeers | $FGREP -w STATE_CLOSE_WAIT_CLOSE_SPENDOURS
+    lcli1 getpeers | $FGREP -w STATE_CLOSE_WAIT_SPENDOURS
     
     # Now it should have spent the commit tx.
     check_tx_spend
diff --git a/state.c b/state.c
index 668b7f442..8ded5c28a 100644
--- a/state.c
+++ b/state.c
@@ -137,7 +137,8 @@ enum command_status state(const tal_t *ctx,
 				goto err_close_nocleanup;
 			}
 			return next_state(peer, cstatus, STATE_OPEN_WAIT_FOR_ANCHOR);
-		} else if (input_is(input, CMD_CLOSE)) {
+		} else if (input_is(input, CMD_CLOSE)
+			   || input_is(input, INPUT_CONNECTION_LOST)) {
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto instant_close;
 		} else if (input_is_pkt(input)) {
@@ -155,7 +156,8 @@ enum command_status state(const tal_t *ctx,
 			bitcoin_create_anchor(peer, BITCOIN_ANCHOR_CREATED);
 			return next_state(peer, cstatus,
 					  STATE_OPEN_WAIT_FOR_ANCHOR_CREATE);
-		} else if (input_is(input, CMD_CLOSE)) {
+		} else if (input_is(input, CMD_CLOSE)
+			   || input_is(input, INPUT_CONNECTION_LOST)) {
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto instant_close;
 		} else if (input_is_pkt(input)) {
@@ -168,7 +170,8 @@ enum command_status state(const tal_t *ctx,
 			queue_pkt(out, pkt_anchor(ctx, peer));
 			return next_state(peer, cstatus,
 					  STATE_OPEN_WAIT_FOR_COMMIT_SIG);
-		} else if (input_is(input, CMD_CLOSE)) {
+		} else if (input_is(input, CMD_CLOSE)
+			   || input_is(input, INPUT_CONNECTION_LOST)) {
 			bitcoin_release_anchor(peer, BITCOIN_ANCHOR_CREATED);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto instant_close;
@@ -196,7 +199,8 @@ enum command_status state(const tal_t *ctx,
 
 			return next_state(peer, cstatus,
 					  STATE_OPEN_WAITING_THEIRANCHOR);
-		} else if (input_is(input, CMD_CLOSE)) {
+		} else if (input_is(input, CMD_CLOSE)
+			   || input_is(input, INPUT_CONNECTION_LOST)) {
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto instant_close;
 		} else if (input_is_pkt(input)) {
@@ -221,7 +225,8 @@ enum command_status state(const tal_t *ctx,
 					  BITCOIN_ANCHOR_OTHERSPEND);
 			return next_state(peer, cstatus,
 					  STATE_OPEN_WAITING_OURANCHOR);
-		} else if (input_is(input, CMD_CLOSE)) {
+		} else if (input_is(input, CMD_CLOSE)
+			   || input_is(input, INPUT_CONNECTION_LOST)) {
 			bitcoin_release_anchor(peer, INPUT_NONE);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto instant_close;
@@ -277,6 +282,13 @@ enum command_status state(const tal_t *ctx,
 						  INPUT_NONE);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			/* We no longer care about anchor depth. */
+			peer_unwatch_anchor_depth(peer,
+						  BITCOIN_ANCHOR_DEPTHOK,
+						  INPUT_NONE);
+			complete_cmd(peer, &cstatus, CMD_FAIL);
+			goto start_unilateral_close;
 		} else if (input_is(input, PKT_CLOSE_CLEARING)) {
 			/* We no longer care about anchor depth. */
 			peer_unwatch_anchor_depth(peer,
@@ -345,6 +357,13 @@ enum command_status state(const tal_t *ctx,
 						  BITCOIN_ANCHOR_TIMEOUT);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			/* We no longer care about anchor depth. */
+			peer_unwatch_anchor_depth(peer,
+						  BITCOIN_ANCHOR_DEPTHOK,
+						  BITCOIN_ANCHOR_TIMEOUT);
+			complete_cmd(peer, &cstatus, CMD_FAIL);
+			goto start_unilateral_close;
 		} else if (input_is(input, PKT_CLOSE_CLEARING)) {
 			/* We no longer care about anchor depth. */
 			peer_unwatch_anchor_depth(peer,
@@ -388,6 +407,9 @@ enum command_status state(const tal_t *ctx,
 		} else if (input_is(input, CMD_CLOSE)) {
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			complete_cmd(peer, &cstatus, CMD_FAIL);
+			goto start_unilateral_close;
 		} else if (input_is(input, PKT_CLOSE_CLEARING)) {
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto accept_clearing;
@@ -428,6 +450,8 @@ enum command_status state(const tal_t *ctx,
 					  prio(peer->state, STATE_WAIT_FOR_UPDATE_ACCEPT));
 		} else if (input_is(input, CMD_CLOSE)) {
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			goto start_unilateral_close;
 		} else if (input_is(input, PKT_UPDATE_ADD_HTLC)) {
 			change_peer_cond(peer, PEER_CMD_OK, PEER_BUSY);
 			goto accept_htlc_add;
@@ -523,6 +547,10 @@ enum command_status state(const tal_t *ctx,
 			peer_htlc_aborted(peer);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			peer_htlc_aborted(peer);
+			complete_cmd(peer, &cstatus, CMD_FAIL);
+			goto start_unilateral_close;
 		} else if (input_is(input, PKT_CLOSE_CLEARING)) {
 			peer_htlc_aborted(peer);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
@@ -566,6 +594,10 @@ enum command_status state(const tal_t *ctx,
 			peer_htlc_aborted(peer);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			peer_htlc_aborted(peer);
+			complete_cmd(peer, &cstatus, CMD_FAIL);
+			goto start_unilateral_close;
 		} else if (input_is_pkt(input)) {
 			peer_htlc_aborted(peer);
 			complete_cmd(peer, &cstatus, CMD_FAIL);
@@ -600,6 +632,9 @@ enum command_status state(const tal_t *ctx,
 		} else if (input_is(input, CMD_CLOSE)) {
 			peer_htlc_aborted(peer);
 			goto start_clearing;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			peer_htlc_aborted(peer);
+			goto start_unilateral_close;
 		} else if (input_is(input, PKT_CLOSE_CLEARING)) {
 			peer_htlc_aborted(peer);
 			goto accept_clearing;
@@ -625,6 +660,8 @@ enum command_status state(const tal_t *ctx,
 			   || input_is(input, CMD_SEND_HTLC_FULFILL)) {
 			err = pkt_err(ctx, "FIXME: cmd during clearing.");
 			goto err_start_unilateral_close;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			goto start_unilateral_close;
 		} else if (input_is_pkt(input)) {
 			/* FIXME: We must continue to allow add, fulfill & fail packets */
 			goto unexpected_pkt;
@@ -637,6 +674,8 @@ enum command_status state(const tal_t *ctx,
 			   || input_is(input, CMD_SEND_HTLC_FULFILL)) {
 			err = pkt_err(ctx, "FIXME: cmd during clearing.");
 			goto err_start_unilateral_close;
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			goto start_unilateral_close;
 		} else if (input_is_pkt(input)) {
 			/* FIXME: We must continue to allow fulfill & fail packets */
 			goto unexpected_pkt;
@@ -667,6 +706,8 @@ enum command_status state(const tal_t *ctx,
 			/* Offer the new fee. */
 			queue_pkt(out, pkt_close_signature(ctx, peer));
 			return unchanged_state(cstatus);
+		} else if (input_is(input, INPUT_CONNECTION_LOST)) {
+			goto start_unilateral_close;
 		} else if (input_is(input, INPUT_CLOSE_COMPLETE_TIMEOUT)) {
 			err = pkt_err(ctx, "Close timed out");
 			goto err_start_unilateral_close;
diff --git a/state_types.h b/state_types.h
index 57c6eeaea..e97255c9f 100644
--- a/state_types.h
+++ b/state_types.h
@@ -281,6 +281,9 @@ enum state_input {
 	CMD_SEND_HTLC_FAIL,
 	CMD_CLOSE,
 
+	/* Connection lost/timedout with other node. */
+	INPUT_CONNECTION_LOST,
+
 	INPUT_MAX
 };