CHAPTER 6: COLLECTIONS
Once a business has obtained a judgment and lien against a debtor, it can try to persuade the debtor to pay. If the debtor sells the property, the lien holder must be paid out of the proceeds of the sale. In general, liens are paid off in the chronological order in which they have been granted. If the debtor won’t pay up or sell, the creditor can go back to court to obtain a foreclosure order. As with mechanic’s liens, the court may order that the property be sold. (Some property owned by natural persons may be exempt, though corporations typically do not enjoy exemption. A primary residence is a common example of exempt property; in some cases, cars or other items may also be exempt, usually up to a certain amount.) The proceeds of the sale will be applied to the liens in the order of their priority after the costs of conducting the sale are deducted. Pursuing a lien can be complicated, time-consuming, and expensive. Multiple steps must be fulfilled properly, in order, and on time. But, if other measures have failed, pursuing liens might be an option that a company serious about recovering debt chooses to consider.
6.8 Bankruptcy
Bankruptcy is a common phenomenon in many countries. It is even written into the U.S. Constitution. Financial trouble can surprise anyone, from toy makers to hospitals to countries. At any given time, there are several countries either in default or on the verge of default. In addition, the U.S. Courts track filings by type; the most recent data is available here: https://www.uscourts.gov/ news/2024/01/26/bankruptcy-filings-rise-168-percent It should not come as a surprise, then, if one of your customers, even one with a long history of financial stability, suddenly quits paying its bills and files for bankruptcy. Business bankruptcy filings are a function of both the economy and specific industry troubles, according to Professor Dan Schechter, a lawyer who taught courses in bankruptcy and commercial finance at Loyola law School in Los Angeles for nearly 30 years. Sometimes even companies that are paying their bills on time can file for bankruptcy, with the goal of reducing a high debt load. This strategy can catch creditors off guard. Effective credit scoring and vigilant monitoring should result in lower credit exposure to highly leveraged companies. Accounts receivable personnel play an important role in recovering money from companies in trouble. From before the filing, through the liquidation and distribution of funds, AR has to track the process and make sure their company recovers as much of the cash that they are owed as possible. In fact, accounts receivable may actually be among the first to sense a problem. If a company begins to regularly make late payments or short pays, it is time to wonder if there is a larger problem. However, you probably will not have to play detective for very long. Chances are that the first notification of the bankruptcy will be from the company itself. A company petitioning for bankruptcy is required to mail notices to all of its creditors and list the amount of money owed.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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