As close as you may monitor your debtors or borrowers, you may be surprised when you learn that a debtor or borrower is in financial distress. Some of the steps to take to prevent your borrower or debtor’s financial distress from becoming yours include:
- Reconsidering further credit extensions.
- Obtaining as much information as possible about the situation from your borrower, its plan to address it and the borrower’s risk of default.
- Determining whether the distress is due to bad circumstances, bad management, or the state of the business or industry.
- Evaluating the debtor’s chances to recover or default, and the risks/rewards or your potential actions.
- Creating a timeline of the situation and calendar future dates of concern.
- Crediting payments to earliest and unsecured obligations.
- Increasing security, collateral, guaranties and other protections.
- Obtaining debtor’s accounts receivable information and determining how to seize or use them.
- Making sure you have all of the necessary documents and that they are in order.
- Obtaining, reviewing and ensuring guaranties are in place.
- Determining, understanding and reviewing your collateral, its protection and updating its valuation and location.
- Evaluating other creditors’ positions, claims, rights and potential actions.
- Entering into pre-negotiation or pre-workout agreements at the start of any discussions or negotiations with the debtor.
- Extending terms or payments by a forbearance or similar agreement to delay default or foreclosure with minimal risk.
- Evaluating and developing asset and collateral protection, seizure and disposition strategies.
- Evaluating debtor’s options and the potential effects on you and your counter-options.
- Retaining professionals for advice before a crisis occurs.
The commercial law attorneys at Brooks, Tarulis & Tibble, LLC have substantial experience in counseling and representing lenders and creditors when their borrowers or debtors suffer financial distress. If you have any questions or problems, please contact us.