A few years ago, when borrowers still had cash or available credit, collections was an easier process–sometimes involving only a strongly worded letter or the filing of a lawsuit. Even post-judgment, collections could just be a matter of finding the bank account with all the cash or placing a lien on the rapidly appreciating real property.
In this recession, creditors need to realize that judgment collections is a process, and no longer an event.
Fortunately, Tennessee creditor lawyers have the benefit of Tenn. Code Ann. § 28-3-110, which provides that a judgment is valid for ten years and, even then, can be renewed for another ten years.
So, while you may be dealing with a debtor without any money now, keep in mind that this economy can shift for the good, as quick as it went bad. In collections, patience can lead to money.
The Wall Street Journal’s Bankruptcy Beat Blog reports that the Bankruptcy Trustee is going after Michael Vick for making allegedly fraudulent transfers to family and friends. Well, the Trustee is technically going after the family and friends to recoup the $2 million in gifts and transfers.
Under Section 548 of the Bankruptcy Code, a trustee can reach back and recover transfers within two years of the case filing, where the debtor had “intent” to delay or defraud creditors or where the debtor didn’t receive “reasonably equivalent value” in exchange for the transfer. This is fairly common: as things start going bad, an insolvent person transfers his valuable property to others in order to keep it out of his creditors’ reach.
But, where a bankrupt just gives money or property to others, particularly friends and family, that puts a big target on those recipients. The goal of the fraudulent transfer statute is to recover those assets, and then distribute them evenly to all creditors–not just the people the debtor likes. (Note to Creditors: Most states have similar laws as well.)
So, whether the goal was to protect his assets or help his family, all Vick did was get them sued in Bankruptcy Court.
In most cases, Chapter 7 Bankruptcy Trustees have far more cases than they have time to focus on each case. It’s common that there are 30-40 cases on each 2 hour docket.
But, a sure-fire way to stand out and really get the Trustee’s attention is show off your wealth on reality TV. That’s what one cast member of The Real Housewives of New Jersey did, and, now, in her individual Chapter 7, the Trustee’s scrutiny of her disclosures revealed that the debtor failed to disclose all her assets, which may allow the Trustee to contest the discharge under 11 U.S.C. 727.
A bankruptcy discharge wipes out all debt, but the price to be paid for that benefit is that a debtor must disclose everything–both debts and assets. From a creditor’s perspective, a well-informed Trustee can be the last hope for any recovery.
In this economy, everyone is looking to find new revenue, and this invariably leads them to that stack of old invoices and accounts receivable they never touched when they were so busy dealing with good, paying customers.
Collections attorneys are seeing more “first time” collections clients and, with those clients, are seeing the same two issues.
First, a creditor who has never sued over unpaid invoices has also probably never had its invoices scrutinized in Court. There, every aspect of the unpaid bill, down to the date, the address, and the amount owed, is nit-picked and magnified. Are your invoices and credit applications “collections ready”?
Second, customers don’t like being collected against, and successful collections can be as much “public relations” as it is legal strategy. Is the collections approach you take appropriate and representative of the way you treat customers, good or non-paying?
These are simply issues to consider and, with the right planning, you may be able to avoid expense and hassle in the process. Plus, maybe, you can turn that stack of invoices into money.
Negative equity drastically increases foreclosure risk. This Christian Science Monitor article notes that the current focus of existing home mortgage modification programs–reductions in monthly payments and interest rates–is misplaced, because the real culprit may be the fact that so many people simply owe far more than their houses are worth.
While lenders may be willing to shave down monthly payments and interest, should they also be willing to shave off tens of thousands of dollars of principal on loans? Does the cost of foreclosure outweigh a discount on the debt?
The above article reminds me of the Tennessean’s 2009 article that the “Making Home Affordable” Modification Program wasn’t helping the foreclosure crisis as expected.
So far, the federal programs look to cure certain symptoms, but can’t seem to reach all of the problem, sort of like plugging a hole and then having another leak spring up.
When talking about big corporate bankruptcy reorganizations, things like “running leaner operations” and “payment in full” (with interest!) to creditors are generally really good things. (Extraordinary things, actually, in Bankruptcy Court.)
But, for the 2,500 employees who are part of the “trimmed” operations of Utah’s Flying J gas stations, the remarkable success of the Bankruptcy is of little comfort. Tennessee based Pilot Travel Centers bought out the assets of Flying J…let’s hope they’re on the market for some people to run the stores.
The Nashville Business Journal reports today that the foreclosure rates have dropped in the middle Tennessee area for May 2010. Regardless of what happened in May, I expect the foreclosure numbers to spike in June, and then virtually disappear in July and August, 2010.
Here’s why: On April 27, 2010, Governor Bredesen signed House Bill 3588, adding Tennessee Code Annotated 35-5-117, which imposes new notice requirements prior to foreclosure on an owner-occupied residence. This law takes effect on July 1, 2010 and applies to any such foreclosure that is published on or after September 1, 2010.
Long story short, this new law effectively requires that a new pre-foreclosure notice, called a “Notice of Right to Foreclose,” be sent to delinquent borrowers at least 60 days prior to the first foreclosure publication date. This law is designed to allow the borrowers to explore refinancing or mortgage modification options. This notice requirement applies, regardless of whether any notice is required under the loan documents.
Knowing that the law had changed, many lenders may have rushed to foreclose prior to the new requirements, which would explain any increase in the June numbers. But, for any remaining residential foreclosures, those would be completely stayed in July and August, while the lender waits for the 60 day notice to run.
If your newspaper seems a little lighter over the next two months, this is why.
It only takes one lawsuit from a Bankruptcy Trustee to prove that, despite all the talk about fairness and equality, an avoidable preference lawsuit is one of the most unfair creations of the Bankruptcy Code. For those lucky few without first-hand experience, here’s the summary: A bankruptcy trustee may be able to sue creditors to recover payments received within the 90 days preceding the bankruptcy case filing. Lenders who have no collateral for their loans are particularly at risk for such actions.
Faced with account payments from customers who may be on the verge of bankruptcy, make sure to document all payments received during that 90-day period and how they were applied. These payment records will be critical to an “ordinary course of business” defense if you are sued. For material suppliers, be sure to advance new funds or sell goods after payment (thus triggering the “new value” defense) or upon cash terms (triggering the “contemporaneous exchange” defense).