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Recovering receivables from customer who files chapter 11 bankruptcy

My only experience with a BR customer was that the hours of paperwork I did was a total waste of time. The final accounting left only enough for the lawyers and IRS, and the company was right back in business, debt free... No idea of how much you are owed, but if I was in your shoes, I would seriously consider offers from the recovery company.
 
At the risk of stating the obvious, I'll say that recovering anything from a Chapter 11 business bankruptcy is rather unlikely, especially if you are an unsecured creditor. If there is a company who wants to buy the debt, they will only do so if the face value is heavily discounted.

You would have to balance the risk of getting nothing versus the unpleasantness of having to discount the value of your receivables to a very great extent.

Good luck.
 
One of my customers was a subsidiary of LTV when they went chapter 11. I was owed $10K plus. After two years I got one share of LTV stock, market value at the time was 50 cents. So, if anyone is offering to pay any of the debt, I think I would take it.
 
I've never dealt with one of these recovery outfits, but given the chances of getting anything out of a bankruptcy, I would be very leery... be careful it isn't a deal where you have to pay them something up front in the expectation that they can recover some of your debt.

I have been involved in picking up the pieces after someone else's bankruptcy (more like picking over the bones :(.) As I recall, the pecking order for getting paid was:

1 employee salaries
2 employee withholding and other taxes.
3 Fees to lawyers for the administration of the estate.
4 secured creditors (people holding a lien against equipment, real estate, etc.) In the order of their filings
5 Unsecured creditors (that's you)

Since most places are bleeding cash by the time they reach the point where they declare Chapter 11 the money typically runs out someplace between items 3 and 4 on the list. Even if you do manage to get something, bankruptcy courts have been known to "claw back" payments made to unsecured creditors to satisfy the secured creditors. Be very careful, a good start would be to talk to your lawyer. He should be able to get a copy of the bankruptcy filing from the court; this document normally lists assets and liabilities, and would give a fair idea if there is any money at all to pursue.

Dennis
 
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I got stiffed in a BR some years back- I would say take the money from the recovery folks and move on.
 
Yep one time -100%..You should ask your tax man, if you take a settlement can you still write off that left over amount AS A bad debt or does taking the settlement negate the entire amount ?

And I highly doubt anyone would pay you even a small amount for that debt there will not be any money left by the time your amount comes up .
 
How much money are we talking about anyway? If it's a large amount, say something north of $10k you can pursue it but whatever you get will be pennies on the dollar. Vendors, as said earlier, are last in line after everything.

BTW, sorry about it. I had a customer do it years ago for about $2100. I didn't even worry about it, it was gone.
 
How would a company stay in business buying bad debt unless they have a sure way of making money off the deal?? Just thinking out loud here...
I would assume they know all the ins and outs of BR court, as opposed to us. Perhaps an inside relation with court personnel? My experience with my BR customer cost me a lot of valuable time, as well as stress, that would have been much better spent on something productive.. I was constantly getting stacks of papers to fill out, take to the P.O and pay to send by Registered Mail.. Total waste of time and money.
 
How would a company stay in business buying bad debt unless they have a sure way of making money off the deal?? Just thinking out loud here...

First they offer very little for the debt, so they don't risk much. Secondly they often try to trick people into paying debts that have already been discharged or are legally noncollectable. In some states the statute of limitations is 3 years on unsecured debts. Lets say Will Seemore stops making payments and no longer communicates with Acme Charge card over a $10,000 balance. Acme sells the debt to Joe Shyster collections 3 years later for $100. Shyster collections offers a settlement of $1500 to clear the debt and remove the negative items associated off Mr. Seemore's credit report. Seemore does not realize he no longer owes the debt and paying $1500 for peace of mind seems attractive and he sends Mr. Shyster $1500. Shyster does nothing but pockets $1500 as the debt was already removed or should have been. Shyster doesn't need too many scores to make money with his profit margin.
 
First time in 34 years I have had a customer file bankruptcy that owed me money. Has anyone used a company like CRG Financial to buy the debt and pay you an agreed upon percentage immediately ? I've not heard of this before, they look legitimate. They contacted me, I'm sure its all in the public record.
Distressed Debt - Bankruptcy Claims Recovery | CRG Financial

READ THE FINE PRINT!!!! When Champ Car declared bankruptcy they owed us 350,000.00 We got offers to buy the debt for 10%. The fine print says if they don't recover you get to pay the 10% back to them + interest! We never got a dime although other companies that the owners of Champ Car owned were paid money owed them by Champ Car!
 
There are some really ugly aspects to American BR laws, at the least if supplying companies can show outstanding invoices for materials delivered they should be allowed to claw back those materials (not cash) on site. Otherwise it's simply theft from the most vulnerable (shops and small suppliers) made legal.

Hmm, now who would write laws that make it legit to steal from small suppliers? Maybe the same guys who endlessly cycle back and forth between law firms, Congress, and Wall Street?
 
If you are a listed creditor you should receive filings from the bankruptcy court. You might be able to guess from that how likely you are to get paid. If you could buy a similar business for $1 and the bankrupt company owes creditors $2 then not likely.

I've not dealt with any "recovery" companies but I would have MY OWN lawyer look over any offer and make sure I didn't have to pay back any advance if they failed to recover.
 
A services-only customer of mine declared about 15 years ago. My exposure was $4-5K. I knew for a fact they had been paid by their customer. After the dust settled, my payback schedule, over 5 years, was 14 cents per year. I got the first check, and kept it as a reminder that I was not a bank, and if folks wanted 30-day terms then credit card companies existed to provide that service. I built their fees into the cost structure.
That customer re-opened the following week with the same name on the door, the same employees, etc.

Hmmm... maybe I can try that on my house...

Chip
 
...That customer re-opened the following week with the same name on the door, the same employees, etc.

Hmmm... maybe I can try that on my house...

Chip

This comment has come up several times, and perhaps needs to be addressed. Not to be an apologist for bankruptcies, and fully realizing that there are some business owners that game the system, I'll state that this is the way Chapter 11 is supposed to work. Chapter 11 is supposed to provide temporary protection from creditors while the business gets its act together, the end result being that it stays in business, the employees keep their jobs, and everybody eventually gets paid. Unless there is evidence of outright fraud, the owner of a small business is most often allowed to continue running it as "debtor in possession." The thinking is who else can the court appoint that would do a better job of running the business? Could a court appointed attorney do a better job of running your business than you can?

This has got to be the situations that these recovery firms look for; they get a copy of the bankruptcy filing, make an educated guess as to the likelihood of the debts being repaid, and at how much of a discount, and then offer the creditor an amount that leaves them a healthy profit if all goes according to plan.

Meanwhile, the owner of the bankrupt business has to file a "reorganization plan" with the court that shows how they intend to become a viable business again. This typically takes a year to eighteen months.

There are many instances where there is no viable reorganization plan... the business was a bad idea from the get-go, and there is nothing that will make it profitable. In this case the court will order the business closed, and the assets auctioned off. The court can also convert the bankruptcy case to a Chapter 7, where the owner is out and a trustee is brought in to oversee the liquidation of assets.

The main problem with liquidating a business is most don't have many assets beyond a desk, telephone, and wastepaper basket, so there really isn't anything of value to be sold. The real estate is likely rented, the production machinery leased, and the production tooling may be owned by another legal entity set up specifically to insulate it from a bankruptcy.This is the point where all the creditors get stiffed. Realizing this, bankruptcy courts often clear their dockets by accepting reorganization plans that require unsecured creditors to take only partial payment, the argument being that they won't get any more, and likely less, from a liquidation.

Dennis

On Edit:
Worth a read for an overview of all the ways you can get screwed by a bankrupt business:
Chapter 11, Title 11, United States Code - Wikipedia
 
I typed a long response yesterday that was lost when my piece of crap satellite internet went down. Sometimes responding to a bankruptcy notice can cost you money. Not going to type all the details again, but I once had a bankruptcy lawyer say I needed to return $10,000 of payments to a company that owed me $2600. They claimed I was paid out of turn as they were up to 180 days behind with others and only 60 days with me. My items were one of the last needed in a production line of $60-$120k vehicles, it was easy for me to force them to not string me along as bad as others. Since the debtor and lawyer were on the opposite side of the country I told him to come get that $10k. I just threw their following letters in the trash, I closed that business years later and never paid a cent, of course I never got the $2600 either. From what I found most unsecured creditors are wasting their time trying to get money from someone bankrupt. Up to hours of research and paperwork to get enough money to buy a pizza.
 
We were hit for $1.1 million in 2008 (perfect timing with the economy and all) . . . I got a crash course in how pretty much impossible it was to collect a penny and any effort spent in that direction turned out to be a complete waste of time.

It almost wiped me out, about 1/3 of my employees left and the rest I put on a 20% cut in pay working 4 days a week.

It was a lovely time that I don't soon care to repeat.
 








 
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