Magazine article Business Credit

NACM Legal Workshop Offers Critical Chapter 11 Insight

Magazine article Business Credit

NACM Legal Workshop Offers Critical Chapter 11 Insight

Article excerpt

A group of credit professionals gathered at NACM-National's offices this past August for NACM's most recent Legal Workshop. Led by star attorneys Bruce Nathan, Esq. of Lowenstein Sandler PC and Wanda Borges, Esq. of Borges and Associates, the program focused entirely on bankruptcy, illuminating each and every nook of this unfortunate reality that is nonetheless part of the credit professional's world.

Taking turns as the program progressed, Nathan and Borges provided an expert's look at the bankruptcy process that could be understood as easily by seasoned credit professionals as by novices. The duo began by discussing the very purpose of bankruptcy which, they noted, was to protect the debtor. As often as trade creditors find themselves in a fundamentally unfair position in a Chapter 11 filing, or in any type of bankruptcy proceeding, it's important to remember that the system exists to protect their debtors, discharging them of most of their indebtedness and staying any potential creditor actions that could have a negative effect on the debtor's position.

Nonetheless, while most of a debtor's obligations are discharged, and while this is the primary goal of any bankruptcy filing, not all claims are dischargeable in all instances. Creditors must keep an eye out for what's legally eligible for relief and what isn't depending on whether the case being filed is a Chapter 7, 11 or 13.

For trade creditors and trade credit professionals, however, in most instances, when they're dealing with a bankruptcy, it's a customer's reorganization proceeding filed under Chapter 11. Since 2005, this process has become considerably more hostile to creditors, mainly due to an increase in the speed of the cases, and a fundamental shift in what's considered a successful reorganization. "Historically, Chapter 11 was used for restructuring and after the rest of the case, there was a plan of repayment for all or most claims," said Nathan. "That is a memory."

As mentioned, since 2005, following the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), Chapter 11 cases are either quick or unsuccessful. Neither characteristic is favorable to the trade creditor. …

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