Much has been written about the changes in the United States bankruptcy law that takes effect in October 2005. Most of the stories seem to center on how the changes will affect consumers. But if you're involved in business-to-business collections, these changes affect you as well. According to Bob Bernstein, managing partner of Bernstein Law Firm, there is some good news for creditors in the new bill.
“Of course, it's hard to make generalizations about changes that are so broad and sweeping,” says Bernstein, whose firm specializes in creditors' rights. “These are different laws that affect different types of businesses. But overall, conditions have become a bit friendlier for companies whose customers are declaring bankruptcy.”
He offers a few examples in “plain English”:
The new rules of reclamation:
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Section 546(c)(1) — The period to make a reclamation demand (recovering goods your company sold) has been expanded from 20 to 45 days. In other words, if you send goods to a debtor company and it files bankruptcy, you now have 25 more days than you did under the old laws in which to send them a letter essentially saying, “We sent you 100,000 widgets and you failed to pay for them Send them back.”
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Section 503 (b)(9) — If you ship the goods within 20 days before your customer files bankruptcy, you are now entitled to an administrative claim. (Previously, you were entitled to a general claim, which meant that you might receive pennies on the dollar at some vague time in the future.) In other words, your claim is viewed as a much higher priority than it was before, which should increase the odds that you are compensated for the full value of your goods.
Commercial lease laws tighten up:
Section 364(d)(4) “tightens the reins” on debtors in favor of lessors of non-residential properties. It states that the debtor must immediately surrender the property to the lessor if an unexpired lease is not assumed or rejected by the earlier of: 1) 120 days of bankruptcy filing or 2) when the reorganization plan is confirmed. Under the old law, the debtor was required to take action, but the guidelines weren't as strict. So, if you own commercial property that you lease to tenants, the changes give the law (and you) more “teeth.”
Protection from preference claims:
Section 547 was strengthened to limit preference claims to those in excess of $5,000. In addition, any claims less than $10,000 must be filed in the court where the creditor is, rather than where the bankruptcy is. This will reduce the number of “nuisance” claims against creditors.
Though recent changes favor creditors, bankruptcy policy helps those who help themselves. Bernstein urges business owners to keep a close eye on customers they suspect might be on the verge of bankruptcy.