What are some of the biggest obstacles faced by businesses attempting to collect on debt?

Top Three Commercial Debt Collection Obstacles Facing Business Owners

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Business revolves around credit.  It is good business strategy to extend credit to credit-worthy customers.  There are times when this “buy now, pay later” strategy backfires.  Sometimes a debtor cannot pay for the things purchased on credit.  You may not have any other option but to hire someone to collect the money that is owed to you.  It is not always as easy as it may seem to convince someone that he has to pay up.  There are a number of hurdles to cross before a collection agency can mark their account as “account received.”

1.       Excuses From The Debtor

Some debtors are truthful and relay their problem with temporary cash flow to the collection attorney.  Others, however, come up with every excuse under the sun.  Beginning with the often cited “the check is in the mail” to someone in their family died, even if that is not true, it is sometimes impossible for the collection lawyer to tell fact from fiction.

2.       Business Closing

When a business cannot sustain itself any longer, it will have to close.  This is usually at great cost to the owner and his creditors alike.  While this is unfortunate, better business practices would have prevented going into debt collection.

3.       Entering Bankruptcy

Once the debtor is in such dire financial straits that he must file for bankruptcy, all financial obligations are processed by the bankruptcy court.  A collection agency, or collection law firms, will have to turn toward the court to recover as much as possible of the owed debt.

It is usual practice to call a debtor first to remind them of their account in arrears.  A letter referring to debt collection would be the next step.  The last course would be to hire a collection attorney.  When all your efforts do not produce any satisfactory results, you may have to hire a collection law firm to recover your money.  Problems of this nature can often be avoided by a proactive business approach.  

Chapter 11- A Reorganization of Business

Chapter 11 bankruptcy is one of the more involved forms of bankruptcy that is available.  In filing Chapter 7 bankruptcy, a trustee is appointed to liquidate non-exempt properties and pay off the creditors.  This is not the case when it comes to Chapter 11. 

When a Chapter 11 petition is filed a trustee can still be appointed, however their properties are not immediately sold.  By filing this petition the debtor is granted automatic stay, which means the creditors have to ‘back off’ on attempting to collect.

The main difference between a Chapter 7 and a Chapter 11 is that in a Chapter 11 the company is still hoping to stay in business, they simply need a more ‘lax’ payment plan in order to recoup.  In Chapter 11 there is a reorganization plan that is set.

A reorganization plan gives the debtors the ability to get their financial affairs in order.  They may negotiate small payment plans, or even lesser interest rates in order to help the debtor to pay back their debts.  With that being said, some creditors have the ability to disapprove or reject the plan. Those creditors that are considered to be ‘fully impaired’ will reject a reorganization plan. 

If a plan is not worked out with the creditors and subsequent plans are rejected, the debtor may be forced to change into a Chapter 7 bankruptcy plan. 

While Chapter 7 bankruptcy is typically called liquidation bankruptcy, it is Chapter 11 that is known as reorganizational bankruptcy.  Most creditors prefer this type of bankruptcy, because in the former there is a good chance they will not get their money back.  Chapter 11 may be a slow process, but it ensures that everyone is on the same page when it comes to paying back debts that have been acquired.  

Chapter 7 – A Liquidating Process

Chapter 7 bankruptcy is the process of cancelling out your debts through liquidation.  Often times this form of bankruptcy is called the ‘straight’ or ‘liquidation’ bankruptcy.  Here are the things that you should know about Chapter 7:

Process

The first step of filing for Chapter 7 is to gain a petition.  Once you have this you will be assigned a trustee to take over your case.  They are knowledgeable about assets and properties, and they will be responsible for separating your unsecured debts from your secured debts.  From there you will have to pay off your secured.  It’s the unsecured debts that take a little more consideration.

The trustee will look at your properties and classify which ones are exempt and which are non-exempt.  They will then liquidate your non-exempt properties and pay off your creditors. 

Essentially you are putting all of your trust into the trustee.  You will no longer have control over your financial affairs or your property.  They are responsible for selling off your assets, and repaying your creditors. 

Cost

It costs around $300 dollars to file and administrate the Chapter 7 bankruptcy process.  It will also cost a decent amount of your time.  The process usually takes anywhere from four to six months, and may require courthouse visits. 

Who is eligible?

If you have already had a bankruptcy discharge in the last 6-8 years you will not be eligible to file again for Chapter 7.  Also, your income and expenses will be looked at, and it will be determined if you are in the position to feasibly repay your debts.  If it is determined you can repay, then you will be put on a Chapter 13 repayment plan. 

Bankruptcy is a tricky concept, and there are many things that need to be known before filing.  It’s always advisable to talk to a lawyer before, and throughout the duration of the Chapter 7 process.  

What if Your Debtor Does Not Have Anything to Liquidate?

With growing debt the words ‘Chapter 7 Bankruptcy’ are beginning to be heard more often.  As you know, Chapter 7 bankruptcy involves liquidating the non-exempt assets and paying off your debt.  All of your debts are separated into secured and unsecured.  The secured debts will have to be lawfully paid off or the collateral will be taken.  The unsecured debts will be put into two categories, and from there the assets will be liquidated.  However, the question must be asked, what does one do in the case of no assets? 

What is a no-asset case?

As has been previously stated, when Chapter 7 is filed the assets for unsecured debts are separated into two categories.  These categories are exempt and non-exempt properties. 

It’s the non-exempt properties that are eligible for liquidation to pay off creditors.  A trustee is assigned to the properties, and they are in charge of liquidating them and gaining the cash to pay off the creditors.   However, more often than not there aren’t any assets that would fall under this category.   This would be considered a no-asset case.

What happens when there is a no-asset case?

When a no-asset case is presented, the creditors do not get paid from the unsecured debt. There isn’t any property to be liquidated, so there isn’t any cash to be handed off.  This results in the debtor’s debt being discharged, and the credit card company not receiving a payday.  Most lawyers will do their best attempt in making sure their client (the debtor) doesn’t have any non-exempt assets throughout the liquidation process. 

 

Debt collection attorneys specialize in realizing when a property should be considered non-exempt.  Despite the relentlessness of the other side, collection attorneys are able to aid the debtee in collecting the debt that is entitled to them.  

Can You Liquidate for Credit Card Debt?

Credit card debt is one of the largest forms of debt that people are getting into.  Accessible usage and high interest rates make credit cards one of the easiest ways to sink into a financial crisis.  When this happens, the debtor has a major option to think about pertaining to bankruptcy.

Those that have credit card debt are eligible to file for Chapter 7 bankruptcy.   The filing of Chapter 7 bankruptcy is a contract that is making the debtor’s property available for liquidation.  This will relieve the debtor of their unsecured debts. 

What are unsecured debts?

Unsecured debts are debts that are not backed by some form of collateral.  Most debts, such as home mortgages and automobiles are secured.  This means that if the payments are not made, the company can relinquish the home or vehicle that is being used as collateral.  However, when it comes to Chapter 7, it’s the unsecured debts that are able to be relieved. 

What is the Chapter 7 process?

Once it has been established that a Chapter 7 bankruptcy petition is going to be filed, there is then a trustee that is assigned to oversee the ordeal.  It’s the trustee’s duty to separate exempt and non-exempt property.  From there, the creditors are notified that a Chapter 7 petition has been filed. 

Subsequently, all of the non-exempt property of the debtor is then liquidated.  The cash that is received from this liquidation is then passed out to pay the creditors.  If there is any remaining cash it may go to the claim’s company. 

Once the credit card companies have been paid, the debtor is then discharged of the preceding debts.  Credit card debt is a messy thing to get into, and it is definitely the slipperiest of slopes when it comes to debt.  Steer clear of this kind of debt, and keep track of your finances.