Arnold J. Janicker
ajj@jenkinsfenstermaker.com

Don't Give Up on Payment

Extending commercial credit to customers is a long established business practice.  Each extension of credit carries with it the risk of default for any number of reasons.  This risk can be minimized, but not eliminated.  Unfortunately the current economic uncertainty leads many economists and experts to believe that there may be an overall increase in the number of individuals and businesses that default on their commercial business accounts, or possibly file for bankruptcy protection.  In either circumstance, a business creditor needs to seek the advice of legal counsel to determine what can be done to protect its position and to minimize the risk of non-payment.

With respect to the potential defaulting debtor, a creditor may find itself apparently trapped in a situation where litigation appears to be the only means available to obtain payment.  Rather than litigate, a creditor may be in a position to negotiate minimum monthly payments with its commercial debtor, or to compromise a particular debt as a means to secure payment or minimize the risk of non-payment.  Many business owners realize it may be best to accept a reduced payment, or extended payment obligation, particularly with a long-standing customer that may be having acute cash flow issues due to the current “credit crunch.” 

When faced with a debtor’s bankruptcy, it is important to remember the public policy behind our nation’s bankruptcy laws—to give the debtor an opportunity to start over while offering limited protection and fairness to creditors with respect to the assets of the bankruptcy estate. However, the old assumption that unsecured creditors often receive nothing when a debtor declares bankruptcy is less certain, due to the changes made in the bankruptcy laws in 2005.  Knowing your rights as a creditor in bankruptcy and acting affirmatively through knowledgeable counsel when faced with either a default or bankruptcy may help to minimize any potential loss.