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Dealing with a client's bankrupcy


#1

Dear Orchidians-

Have any of you had the pleasure to be confronted with an account
who is filing for bankruptcy?

I have to assume this may be a wide-spread problem in our craft
under these austere times.

I know that the court assumes responsibility for distributing funds
to creditors and therefore only a portion of debts may be repaid.
Some not at all. Larger firms with legal staff will be more apt to be
first in line or at least able to recoup losses with tax write-offs.

But what about the small, sole proprietor, goldsmith?

Can anyone suggest a strategy to take prior to the actual filing?
And what can be done after the filing?

I would be very appreciative of your advice and experiences.

Cheers. Kim
www.KimEricLilot.com


#2
Can anyone suggest a strategy to take prior to the actual filing? 

You can do a UCC filing which makes you a secured creditor, in that
you would come before the unsecured creditors. Its not a guarantee
but it moves you further up the line. I’ve never done it so check
with an expert re procedure and costs.

You can become a JBT or D&B member and get credit reports before you
grant credit. Still not a guarantee but you might avoid some risk.

What a lot of manufacturers are doing these days is taking checks.
Customer gives you post dated checks in whatever dating you both
agree on, break into monthly installments if you wish. Frankly I
don’t know the legal ramifications regarding how post dated checks
would be viewed by a trustee but certainly I’d bet most issuers of
post dated checks fear criminal consequences so they’re more inclined
to cover them, bankruptcy filing or not. I do this now on a good
percentage of my purchases. I like it because it frees me up from the
dreaded paperwork. I just keep a log of all post dateds so I know
when they’re coming up. Its not much different in practice from
automatic credit card payments. I remember my early days in
business…everything was terms, net10, 30 days, 30-60-90, January
dating etc etc. It was freekin nightmare to sit up nights twice a
month, bills and checkbooks and calculator spread all over the dining
room table trying to make some sense out of who gets paid this time
around. I didn’t go into jewelry to be an accountant so that was for
the birds. What I’m trying to get across here is that don’t
presuppose that your clients will be averse to post dateds, Despite
that they sound scary at first, they actually benefit both parties.

I think small makers are in a catch 22 situation. They can’t really
afford to grant credit yet if they don’t they may not make the sale.
I wonder if at some point the industry brings back jobbers. A jobber
was a distributor who made the purchase from the maker and then
resold at a small profit to retailers. This isolated makers from some
risk, resulted in bigger sales for the maker, but also resulted in
higher prices to the retailer but made his buying a little easier.
With the ongoing pressure on prices and the bankers’ mood it prob
won’t happen anytime soon. Still, it was a staple in the industry for
a long time and like most classics, may come back. Going back to the
dining room table…it was nice and convenient to write one check
that covered multiple individual product sources.


#3

If a client becomes bankrupt you can generally kiss goodbye to most
of the money owed to you but you can stop other creditors seizing
your stock as an asset of the bankrupt by simply making the company
sign a notice that the goods remain your sole property until paid
for in full. The post-dated check bit probably wont get you your
money but you could try a direct debit mandate via credit card. Again
not foolproof but a credit card company bouncing the payment will
have a lot more answering to do. Issuing dud checks is theft so the
person signing then has a lot more to lose than your money so it is
better than just hoping things dont go awry.

Nick Royall


#4

I’m a jeweler not a lawyer, but I have always been under the
impression that a post dated check is a “Promissory Note” and not a
contract and something that will not stand up in a court of law. Any
real lawyers lurking out there who know the answer?

Jo Haemer
www.timothywgreen.com


#5
but I have always been under the impression that a post dated
check is a "Promissory Note" and not a contract and something that
will not stand up in a court of law. 

Just back from Italy, trying to catch up a bit here. I’m not even
going to read the seemingly endless “handmade” thread…

I’ve been told that here in California postdated checks are illegal -
I also am not a lawyer though. Certainly bounced checks are
considered a form of theft, by the courts. Whether that’s true or
not, I wouldn’t take a postdated check under any circumstances. Come
back when you have the money to pay for it…


#6

Hey John, WB.

I wouldn't take a postdated check under any circumstances

This is meant more for makers who have to finance inventory
purchases made by their clients, not for trade shops. Boiled down its
similar to granting terms, which is a standard thing when selling to
retailers. The difference is the seller holds the checks. In the case
of a buyer who may file, I think its pretty likely they’re behind on
those payments that they can string out, which is to say merchandise
purchase terms and other non essentials.

So someone may know for sometime before filing and consequently just
doesn’t pay on those terms. Now if the supplier is holding checks
its more likely that some money will actually be collected. Yes, in
many cases a post dated check is a promissory note but I’ve read that
if the checks cover an ongoing payment schedule that perhaps they may
not be notes afterall but bad checks that can be acted upon. A nuance
that I don’t fully get but then I’m not a lawyer, but I’d bet many
issuers of post dateds may not get that distinction either and may be
fearful of pushing the envelope, so to speak, so they make sure to
cover the checks.

There are quite a few makers who offer this option, at least in the
NY area, there must be a reason.


#7

It’s my understanding that the date on a check does not necessarily
mean all that much; I’ve heard of people who gave someone a
post-dated check, and that person immediately deposited it and it
either went through or bounced; the bank ignored the date on the
check. I think I read about this in a personal finance blog, one to
do with debt-collectors. Anyway, it sounded to me like if you give
someone a check, they can deposit it PERIOD, whatever the date
thereon.

I could certainly be wrong about this, but it does seem it’s a risk.

Amanda Fisher


#8
Anyway, it sounded to me like if you give someone a check, they can
deposit it PERIOD, whatever the date thereon. 

You are absolutely right on this. The bank doesn’t even bother to
look at the date for the most part and will not hold a check just
because it is post dated.

James Binnion
James Binnion Metal Arts


#9

I think there’s a time limit- like a check can be too old, but not
too new. CA banks will not honor the date on a post-dated check.

It’s actually considered a type of fraud to post-date a check.

Amery Carriere Designs
www.amerycarriere.com


#10

James,

You are absolutely right on this. The bank doesn't even bother to
look at the date for the most part and will not hold a check just
because it is post dated. 

Banks are weird.

I live in Vermont, local bank doesn’t deal with Canadian money. I
need it upon occasion so I keep a canadian account and mail them a
cheque every couple of months to keep the balance reasonable.

Big early morning wake up phone call a few cheques ago, no year in
the date and the bimbo would not write in 2010, wrong coloured pen or
some such crap. That bank has its knickers on way too tight but I was
not impressed.

jeffD
Demand Designs
Analog/Digital Modelling & Goldsmithing
http://www.gmavt.net/~jdemand