Credit and the Law. Part 1 JAMES F. KAHN & KRYSTAL M. AHART - BANKRUPTCY LEGAL CENTER ATTORNEYS AT LAW

Transcription

1 Credit and the Law Part 1 JAMES F. KAHN & KRYSTAL M. AHART - BANKRUPTCY LEGAL CENTER ATTORNEYS AT LAW

2 Initiation of the Credit Relationship

3 Credit application EMCAPP - The Electronic Media Credit Application provides uniformity & consistency Financial Statements

4 Verification Dun & Bradstreet ( Experian or other credit reporting agencies References contact them!

5 Establish criteria for approval Credit scores Financial ratios Security Collateral? Guarantees?

6 Duration of the approval Probationary period Specified duration Post-cataclysm review

7 Documenting the Credit Relationship

8 Contract for Service Specific terms and conditions. Repayment terms Interest rate, including APR Collection costs & attorneys fees Signed by authorized agent

9 Personal guarantees Separate document vs. CONSPICUOUS inclusion. Clear signature separate signature line for guarantor(s) Creditworthiness of the guarantor Waiver of claim for indemnity from principal debtor Both spouses signatures required in AZ to reach community property.

10 Management of the Credit Relationship

11 Recurring review of creditworthiness Frequency (Annual? Semiannual? Quarterly? Never?) D&B or other credit reports.

12 Red flags/triggers Slowness in payments NSF s Changes in purchasing patterns Rumors Social media/google

13 Solutions COMMUNICATION! Probation Shortened terms Security interest Cash in advance (CIA) Cash on Delivery (COD) CIA/COD + x % of old balance Suspension or termination of services

14 Collection Timing In-house Collection agency Collection attorney

15 The Collection Process Strong requests Formal demands - with reasonable deadlines or schedules Demand from collection agency or from counsel Litigation

16 The Litigation Process Creditor files a Complaint & Summons and serves defendant(s). Defendant defaults, answers or files a motion seeking dismissal. If default: a judgment is soon entered, followed by enforcement (more to follow) Answer and/or motion - let the games begin!

17 Judgment enforcement Varies by jurisdiction; most are similar; terminology varies Writ of Execution. Order to the local sheriff to seize property, sell it and pay the proceeds to the judgment creditor Writ of Garnishment. Order to a bank, depository institution or other party indebted to the judgment debtor, to pay any held funds to the judgment creditor

18 Judgment enforcement (cont d) Wage Garnishment/Wage Levy: A special form of garnishment designed to capture wages, available in some jurisdictions. 75% of net disposable earnings are exempt pursuant to the Federal Wage Garnishment Statute. Judgment Lien. A judgment can be recorded and become a lien on real property owned by the judgment debtor in some jurisdictions. Judgment Debtors Examination. Order to the debtor to appear in court (or, in some jurisdictions, in the judgment creditor s attorney s office) to testify regarding income, assets and financial condition generally.

19 references Defined (more details in Part 2) Anticipating the preference. Taking the preference: Take all you a can get Better to beg forgiveness than wish you had money Recommend: CIA/COD + x % Be aware of risk! No good deed goes unpunished!

20 Credit and the Law THE END OF PART 1! JAMES F. KAHN & KRYSTAL M. AHART - BANKRUPTCY LEGAL CENTER ATTORNEYS AT LAW

21 Credit and the Law Part 2 - Bankruptcy JAMES F. KAHN & KRYSTAL M. AHART - BANKRUPTCY LEGAL CENTER ATTORNEYS AT LAW

22 Automatic Stay of Bankruptcy Truly automatic! STOP ALL COLLECTION IMMEDIATELY UPON NOTICE! Formal notice of bankruptcy. Informal but somewhat credible notice of bankruptc PACER subscription ($0.10/pg): Threat of future bankruptcy is insufficient

23 Preferences Defined (again) 5 criteria for payments to be preferential: To/for benefit of creditor; On account of a preexisting debt; Made while debtor is insolvent; Within 90 days before Bankruptcy; and Enables creditor to receive more than others similarly situated.

24 Preference Exceptions 9 Exceptions (don t lay down & die!) New value given (contemporaneous exchange) Ordinary Course of business or industry standard Total is less than $6,225 (in 90 days) New value given after payment made

25 Payments from third parties Beware of fraudulent transfers e.g. payments by related entities for no value

26 Preferences General Rule Take all the preference/fraudulent transfers you can get. Argue later about giving the funds back

27 Bankruptcy Chapter 7 liquidation

28 Chapter 7: liquidation Trustee appointed to gather assets, liquidate, and distribute He s from the gov t, he s here to help! File your Proof of Claim! Simple form, available online: No Proof of Claim = no distribution from bankruptcy case Sit back and wait Could receive $0, even if Proof of Claim filed

29 Bankruptcy Chapter 11 reorganization

30 hapter 11: Reorganization Existing management remains in control (usually) Reevaluate credit considerations Open a new account & account # saves confusion. Old balance goes on hold Subscribe to PACER Executory contracts. Debtor can accept or reject Creditor can compel decision

31 hapter 11 Reorganization (cont d) Request (beg) debtor to seek Critical Vendor status in the hopes of early payment (cutoff advertising unless/until Critical Vendor status is granted) File your Proof of Claim! Simple form, available online: No Proof of Claim = no distribution from bankruptcy case Sit back and wait

32 Credit and the Law THANK YOU! JAMES F. KAHN & KRYSTAL M. AHART - BANKRUPTCY LEGAL CENTER ATTORNEYS AT LAW