Bankruptcy Workout. What is it??

Debt from ID theft?

Danforaloan — Sun, 29 Apr 2012 20:14:00 GMT

What an industry! The number of credit monitoring and reporting services is staggering, however I have not had a client that had been affected by ID theft. From a recent advertisement I saw, hacking into checking and savings account is rampant. I know that consumers are normally protected by the CC companies against fraudulent charges, so why can't the banks do the same for checking and savings? The banks could use the protection of these accounts as a way to attract customers. Instead of offering a teaser rate for a checking account and debit card, they could say .....Come to XYZ bank for full protection against ID theft. It was just a thought.

'Notables' bankruptcies always newsworthy.

Danforaloan — Fri, 20 Apr 2012 18:32:00 GMT

You see in the news 'yada yada yada' declares bankruptcy. Then you ask yourself, how can this happen? They were gazillionaires yesterday. Some people say mismanagement, bad luck, sign of times, Nasty Divorce', poor health, and the reasons go on and on. One way to temper the gross amount of a persons good fortune is to deduct taxes and then look at all of their liabilities. What did it take to get to square one on the 'rich scale' before the decline?

Athletes are a case in point. I don't know how many financials I have seen with such a long list of medical procedure expenses as football players after their playing days are over. The team quits paying, but the back still aches. Who pays for the pain killers? (Pro's definitely develop some unsavory habits also, but they are not evident as such on the balance sheet. It usually shows as credit card debt.) Big money has a way of causing amnesia while it is coming in and how money was spent seems insignificant.

Negotiating 'notables' debt is also more of a challenge due to the 'no mercy for the big shot' attitude that clouds the mind of some creditors. The first thing you hear from the conversation is " oh, wasn't he the ----". Everybody in credit seems to stay up on the news, and has an opinion, but that is my job, to get around all the barriers.

'Split' or 'Shared Leases'! Entangled Indebtedness!

Danforaloan — Wed, 18 Apr 2012 17:05:00 GMT

As you probably know, anything can be leased or purchased on a divided payment basis. Four people can lease a Rolex. Six people can lease a Lear Jet. Eight people can lease a custom designed yacht. As long as a residual value can be determined, an article can be leased, also the item does not belong to you and any alteration or 'sale' of a share calls for new paperwork and in many times an exchange of funds. (Can you see where this is going???)

Business leases for equipment can sometimes be a hard thing for some owners to understand. For example, fitness center owners decided to sell off a couple of pieces of their equipment to pay the rent after a few slow membership months. This action snow balls. 50% of the machines are now missing. The lender decides to audit. The offending partner departs. The remaining partner is holding the bag. So, when the audit is finished, and the net result deficiency is more than the projected revenues for the next year, the remaining partner throws up his hands in despair and gives you the key! Boy what a mess! I got a crash course in resale value of exercise equipment AND who was totally responsible for the debt. Since they were both on the lease, the departed partner, after he was located, seemed shocked to know what residual value REALLY is for a SMITH MACHINE and PREACHER CURL BENCH.

I rarely encountered losses on the luxury items, however I am sure they happen frequently, it's just that I did not have the occasion to handle them. My business was more mainstream. Small business leases, loans, lines of credit, etc., much like the scenerio I described earlier. However, the same recovery procedures apply to both. To minimize losses in business leases they are 'loaded' in front with shorter terms and minimal residual requirements.

The 'entangled debt' comes into play when one of the partners has a different agenda than the other, and you have to negotiate through the whole loss to to satisfy your specific clients needs. The fitness center case that I mentioned earlier was like that. One of the partners was a pro wrestler, and he had a lot to lose by jumping ship. The partner that flew the coop was a body builder too, but a broke one. Neither had experience in business. Even though I was on the finance side in this case, I wanted to help as best I could without sending in the litigators, so I dug as deep as I could and found they did have an accountant AND he was the purchaser of a couple of the leased machines AND I feel he was the one that instructed them in their folly. My employment somewhat prevented me from further involvement in this case, but I have seen a ton of ventures (or adventures) where athletes or other notables would start a business, have big bucks in the bank, and fail.

'Medical Bankruptcy' Ambiguities!

Danforaloan — Wed, 04 Apr 2012 19:31:00 GMT

This 'medical' part does not show on a credit report, however if it is the true cause for filing, the filer should get a 100 point fico bonus so their prior pay habits could get more weight before they were afflicted. (The score seems cold and heartless, but really necessary to determine risk.) There are too many cases of humongous health related debt to analyze each. There is no more demoralizing situation to be in for the consumer that relies on their credit for everyday necessities. (The majority of the time, the patient can't do anything about it anyway). Even though the debt may be staggering, rushing to file will cause all of your other creditors to cut you off and this must be considered. This IS a time when professional help can really make an impact on your future.

A little insight on this type of debt. When I was a high school kid I worked for an auto parts store after school and Saturdays. This was my first exposure to what prices were paid for goods and services. We had several different prices to charge different people for the same item. For example, the price of a spark plug may be $1.00 to an individual, off the street. The same plug would be 90 cents to a shade tree mechanic, 85 cents to a regular garage, 80 cents to a new car dealer and so on and so forth. The same principle seems to apply to medical billing. Individuals, paying cash, pay the most, insurance companies pay less (and they vary), institutions sometime get a break, associations can also. It seems like it is all over the place. Fair trade rules do not apply! This disparity seems to 'psyche me up' when negotiating these debts, and on occasion I will compare a brake shoe for a 'garage' customer to an arthroscopic procedure for the 'off the street, cash paying patient' with no insurance, OR my client has been charged $20,000 by your radiology labs, will they qualify for the 'package deal or distributor discount'?

Personal Bankruptcies! The 'nasty' divorce bankruptcy! '

Danforaloan — Mon, 02 Apr 2012 21:19:00 GMT

Bankruptcies resulting from divorces seemed to flourish more in the 90's. It seemed like every other day you would be confronted with a credit history that showed a BK and the excuse seemed to be a 'nasty divorce'. Here is the picture. A young lady and a young man are sent to you by a home seller and they want a mortgage. On average, the young lady has 2.9 children. Two by her first husband and .9 by the young man accompanying her. Their need is a larger home (4 bedroom) to acommodate young .9 when he or she arrives.They are in a hurry and they need a miracle quick.( Henceforth they come to Danforaloan) As we review their 1003 and credit report we discover the young man has several large 'blips' and the excuse is 'nasty divorce', and what can 'I' do about it to help them in their quest. More on this later.

One thing I know for sure, the ease of obtaining credit cards certainly made the term 'nasty' become affiliated with more divorces. You would hear the term now and again(mostly associated with big money in community property states) in previous years, but 'loosey - goosey' cc's in the 90's made the term more common. In the 60's, 70's and early 80's when the splits occured, the wife moved back to mom with the kids, hubby would move into an apartment with room mates and even though there may be a lack of fiduciary duty, not enough debt would go awry for bankruptcy, in most cases. Starting in the late 80's, cc's made it possible for apartment deposits, utilities, rent (for a while) and any number of things(vacations to Paris) that would soothe the feelings of a young divorcee. The guy would normally transact for a budget busting auto payment and would also enjoy the good 'cc' life. From past experience, there seemed to be equal participation in this frenzy, so when a victim is named, the only one that comes to my mind are the cc companies.

After divorce, housing arrangements would vary by region, but throwing caution to the wind was pretty much unanimous until the next need for time purchasing arose.

Retailers Floor Plan Debt

Danforaloan — Fri, 16 Mar 2012 02:24:00 GMT

Inventory financing is the lifeblood of many retailers, however if things go awry, bankrupting on an out of trust situation is an adventure. There are a number of ways to approach, but all are 'messy'. In my early finance years one of my duties was checking these plans for retailers (cars , appliances, rv's, boats, etc.) to determine what was sold and needed paying. The retailer was supposed to remit when sold, however when this did not happen, my job was to extract a check.

On more than one occasion, a dealer near to my office would 'float' a couple of cars. They were reco's (reconditioned VW's). They were not very expensive and since they were used, there was no manufacturer note endorsement. ( If the dealer went out there was no way to recover except from the dealer) Seems risky, but this went on for years until one time he was 10 out, totaling about $10,000(early 60's) and said he did not have the money to pay them off, that he was bankrupting and quitting business. (This guy had been such a good source for loans, all direct and high interest. He was a master at getting parent endorsers, plus he was accross the street from a college) This would hurt my loan operation a lot more than the 10k. I put together a note for him and asked my boss permission to pull this off and he nearly blew a gasket, so I left him the dealer file and info to pursue through legal. ( In floor planning a side loan is considered a no no, because you make an offer to let them off the hook on a demand note that threatens conversion litigation, but in my experience, pressing the issue makes the subject run faster to file.) The higher ups forced the dealers hand and he did as he said. What a waste.

Some years later, retained by a large, old, established retailer, I was confronted with a similiar situation. Prior to my arrival, I had an idea of the problem, but my job here was to create revenue enough to cover the gap. However these folks needed a year to bail and only had a few months. I was too late. After a ton of meetings the consensus was to lay it all out for the creditors. It was agreed the upper management would depart and the creditors would bring in their people. When the switch occurred, the creditors brought in a rogues gallery ( I knew them from the industry) and they did not need me. This was an excellent example of hiring wolves to guard the henhouse. It did not make sense to me. The creditors forced the original owners into BK with only 9 months left to bring the ship level and sure enough, after a few years they did close up all operations and the CEO hired by the creditors was under suspicion of fraud.

I have given two bad examples on mishandled inventory financing, but in between these there were a lot of successful workouts. Contact me if inventory financing 'gaps' are troubling you.

Compartmentalization.

Danforaloan — Sun, 04 Mar 2012 19:44:00 GMT

An easy trap to fall in is 'the right way is the only way' syndrome. Classifying every business financial condition (like the justice system classifies decisions) is NOT guerrilla accounting. Outside of the box could be totally in space. Some businesses in Middle and South America for example, are operated in such a way that reorganization is impossible, the right hand does not know from the left, and getting in to their accounting picture for a US trained administrator is an education you may not want.

After years of training to use the balance sheet as a guide to a businesses viability,(compartmentalizing) also for credit and tax purposes, and then see one operate totally in the dark for 25 years seems irrational, but it happens. Prudent banking practices seem to be 'out the window' in these cases, but we negotiated an unsecure line for an owner like this, kept him out of court. ( By the way, that business moved from Nicaragua to Texas. They tried to file there and could not. The line was set up and they are in good shape now.)

If we had put this deal 'in a box', he would have been a dead duck, but GUERRILLA TACTICS along with the owner and his family being so NICE and HUMBLE made this deal fly. Sometimes being 'nice' is the best collateral, also there is no discounting blind luck.

If you feel like you know everything???? Hidden Assets.

Danforaloan — Thu, 01 Mar 2012 23:15:00 GMT

When you do what I know how to do and have a little luck, sometimes you get a job referral. A former employee from a firm that I helped to stay in business called me. He stated he was in a high management position with another company now and they needed my help. I was to contact his new company President and set up the interview, which I did. This was truly a Mom & Pop.( But they were retail and doing 5 mil a year in 1985) He was the Pres and she was everything else, and on top of that our interview was at their home for breakfast. It was like I came for a visit, ate and hired before they asked any questions. I was elated to say the least, felt a bit strange, but I really looked forward to getting to work on their finances, little did I know that I would totally have to reconstruct their balance sheet. The Pres' wife actually ran everything out of a check book! Unbalanced!

They had unpaid creditors coming out of the woodwork. Everytime I would get my arms around one, another would pop up. I would use stretching methods, get some room and Ms. Pres would become upset because she had promised an earlier payment or she felt a moral obligation to that vendor. Their credit rating was such that most vendors now had them on COD anyway and in order to operate we needed that cash to pay employees. When I did find vendors to ship us so we could float the payable, she would find another pet project to use the money on. Finally we had to have THE meeting. They were SO upside down. She wanted to know if reorganization was possible. I finally had em', or so I thought. She was probably appeasing me. As I look back, I had compartmentalized them, only using tunnel vision to accomplish the task. They probably had hidden assets.( Of course exposing the assets to me would have defeated the purpose of paying me to bail them out anyway.)

After 3 months I had put together a plan that would keep them in business if they did not take anything out for 2 years. This did not sit well, but they either adhered to it or were infused from somewhere, because they or their kids are still in business today. Sometimes empathy and patience (especially in a family run business) are more important than negotiating with creditors.

Bailouts before 'Bailouts' were cool.

Danforaloan — Thu, 01 Mar 2012 19:53:00 GMT

Thirty years with many claims and courthouses later, I attended the case I wrote of in the SCARLET LETTER, where I did not recover enough to pay for the trip. This case had the circus atmosphere I mentioned previously. Since it was in the billions, tied to banking and investments, mortgage portfolios and insurance, the beginning resembled an octupus, with all the arms flailing, dragging smaller investors and vendors under. The day of the big show was quite different though. It was like a string of dominoes, falling one at a time. A few of the 'arms' were saved, but I still don't know exactly where the money came from (could be your taxes at work) and if I did know, it probably would have done no good. I do know this. The sartorial splendor and general demeanor of the participents was a far cry from the 2nd floor experience I had in 1963. I believe these folks could pay their own fees.

As a result of attending this proceeding I did meet one of the stiffee's (claimant) who had incurred substantial debt from his involvement with the filer and he questioned his own viability since his income was cut off. He also felt he could not delay his creditors any longer. He explained his business and we briefly went over his financial situation. He had fantastic ideas but his business plan needed a tweak or two (he also needed to learn the art of stretching creditors). His company is still in business today. I am not sure whether it was our conversation, he found money under a rock, or he decided to gut it out.

B. The Scarlet Letter. Branded?

Danforaloan — Mon, 27 Feb 2012 18:14:00 GMT

Once your credit file receives this information, the world then knows that you are infected, and the guards, Fair and Isaac, will not allow you in the good credit pool, at least not for a while.( Up to seven years or more.) There are a number of ways to have it removed, (not necessarily legal) but it is like a zit, once you think it has been eliminated, it can pop back up and you must be vigilant if you want to be an early emerger.

Of course, careful thought and counsel are so important before taking the plunge. Depending on your reasons and necessities for filing, there can be unforseen consequencies, like missed opportunities due to lack of leverage ability. For example - Your idea may not have flown well in Chicago, but might soar like an eagle in Barcelona.

Bankruptcy laws, being what they are, are bent quite a bit. I have worked for several multiple filers, they usually look pretty old and tired. One thing about a bk court, not a lot of smiling going on and being noble seems to take a back seat to guile. The difference between individual or small business as opposed to large corporation proceedings is a sight to behold also. Some of the biggies' seem to have a circus atmosphere in that there is so much going on, and people smile more with a lot more handshaking. I have come away from those things with a fraction on the dollar and been happy. Ha Ha

My first exposure to bankruptcy court was in the summer of 1963. I came in to the office and was told to take an envelope to the courthouse and go upstairs to the BK court, that I would be representing the company in this case. When I arrived upstairs a man in a suit walked up to me and asked my name and said did I have the envelope. I gave it to him as he requested. He left me and went to a young man sitting near a group of people that were seated on a long bench in a hallway outside the court room. All of these people on the bench were NOT smiling, they were mostly young people, say 30's and 40's. They wore casual type clothing, NO suits. There were men IN suits standing or going to and talking with the various people on the bench and THEY smiled occasionaly. The man returned with the envelope, gave it back and said to return it to my office. I was disappointed that I did not get to watch the proceedings, however I had unwittingly participated. I later found the envelope contained cash and a loan agreement so the client could pay fees ALONG with HIS reassumption of the debt.

Student Loans

Danforaloan — Sat, 11 Feb 2012 19:59:00 GMT

Some years ago, my brother was involved with recruiting MD's for the 'doc in a box' craze in our country at the time. His most fertile area was in foreign countries where it appeared the subject would flee to avoid payment of these humongous loans. One of the 'hooks' for their return to the US was a promise to have these loans 'forgiven'. Now there is a difference in forgiven and 'paid off' that I will explain.

A few years later I happened to have a loan that I could not get past underwriting and 'small world', it was one of the aforementioned. The subject did not complete his contract and the 'forgiven' loan reappeared at a 50% higher balance than the original amount. After all the shock had worn off, I did get the 'blip' reduced to a reasonable amount and the Dr., who was now in the chips, paid it off to be able to move into his new abode. What an education that proved to be. These loans can not only accelerate, coast, and stop, thay can also expand (fluff), without rhyme or reason, depending on the servicer.

To some young men and women, these loans are like 'anchors', stuck in the mud and holding back talent that is in short supply. Contact me if this fits.

'Impending Financial Doom'

Danforaloan — Sat, 11 Feb 2012 18:49:00 GMT

Sounds sinister I know, but it is a shame for a great idea to be washed down the drain with faulty financial practices. Many times the owner is last to know due to the 'rose colored glasses' syndrome. When the situation seems dire, the old 'split and SHELL' comes to mind. Put most of the assets on one wagon and liabilities on another. There can be some 'gnashing of teeth' or apprehensiveness, however there are examples of successful splits available on line. The banking industry provides an excellent model for this maneuver (a great source of code) except they have the FDIC as their 'donkey' (thats where all the foreclosures go after they are 'sanitized').

Guerrilla Accounting - Revolving/Open account payables

Danforaloan — Wed, 08 Feb 2012 19:11:00 GMT

You probably would not be surprised at the percentage of small businesses that open without a game plan, pro forma, forecast, etc.. Having said that, some of the strangest situations have worked out because of ideas, guts, luck, economy, so on and so forth.

Enter the CC commercials with their scenes of construction, restaurant, clothing designer companies 'on the spot needs'. Bank lines of credit at least get a little conversation or thought, but with these little 'gems' you can get 'neck deep on the fly' and boy can they pick up 'fluff' if you don't follow the 'rules' exactly. This is part of the CC hypnosis that can stymie a 10 million a year operation or a consumer with a $1000 'starter card'.

I use the term revolving/account payables to illustrate that a credit card is used many times when the vendor's factor is on 'alert' due to an account being 'maxed out' and places you on COD. It seems the mixture of revolving and account payable has a certain danger for the small business.

Guerrilla Accounting/Reorganizations

Danforaloan — Mon, 06 Feb 2012 23:59:00 GMT

When the BB's (Big Box) retailers come to town the M&P's (Mom and Pops) thin out considerably and many wind up in reorganization or CH 7. Of course the main reason is price or leverage. The BB's suppliers (who also may supply the M&P's) give the BB so much dating (time to pay for it) and discounts that the M&P's can't compete. If it were only the discounts it wouldn't be so bad, but 12 month dating is a killer. You can sell loss leaders everyday for a while if you don't have to pay and make it up elsewhere when the competition is gone.

After the aforementioned scenario occurs, chapter 11 and 7's become a hot commodity and knowledge of applying the scalpel to the payables is instrumental for successful comebacks or acquistions.

Guerrilla Accountant

Danforaloan — Fri, 03 Feb 2012 23:40:00 GMT

Establishing credibility in the business world or with employers can be difficult without degrees. My first employment was with a Loan company and I became a credit grantor right away. My next job was basically the same with a furniture company except after putting together a good portfolio of accounts I would sell them in bulk to finance companies or banks. One of these finance companies I did business with became my next employer. Since my accounting experience had mostly been OJT, my new employer sent me for some courses to spruce up my vernacular and make the upper management happy. I really played in the same arena, numbers, balance sheets, P&L's, spreads, but I was now on the 'visiting team' working with retailers like my prior job. I was called a staff accountant on my pay grade but VP on my business card. What did THIS VP do? When a company is looking to make acquisitions of other companies there is a certain amount of Due Diligence needed along with Schmoozin' and Snoopin' to make sure you you 'leave no meat on the bone'. On occasion if the 'moon and stars' line up, it becomes necessary to do cosmetic SURGERY on their payables in a way that makes everybody happy! OF COURSE, being close to reorganization makes for an easier transaction for the buyer.