International Society of Primerus Law Firms

Clients Should Accelerate Debt Recovery Now! Business Bankruptcies to Rise in 2010

By: Steve Kailas & Stephen Taylor

Kohner, Mann & Kailas, S.C.

Milwaukee, WI

If we are lucky, we have reached the end of the recession. Commercial markets are already slowly improving and recent corporate earnings reports show that many companies have cut costs drastically and are paying off debt and building cash reserves. Unfortunately, most have not, but all will soon be rosy for creditors, right?

Wrong! Personal experience as a commercial attorney during prior recessions and recoveries, supported by empirical studies of business behavior in such times, suggests that many businesses will make the mistake of relaxing their focus on problem debt as soon as there is the first sign of economic improvement. Unfortunately, those that do so expose themselves at the worst possible time.

We have experienced a significant contraction in business and consumer spending. When this is combined with credit famine it creates a very serious evaporation of cash flow, which is so vital to a healthy economy. All this has hit most businesses very hard. Plus there is a great deal of debt on the balance sheets of corporate America, due in part to the free lending banking environment that preceded the recession. Many of these loans are due to mature, creating yet another very serious environment. Any improved credit market will only help the strongest borrowers, which are generally the firms that dont need additional loans to survive. Even if a troubled business is able to obtain credit, the cost to it will be increased, providing little help in stabilizing the financial worth of the company.

Many lesser companies are hanging on, hoping this lift off in economic activity will enable them to service existing liabilities before operating capital runs out. For such troubled firms the threshold of survival is running out. New financing is difficult to find, and will often only inflate costs and expenses.

Standard & Poors, the respected corporate credit rating agency, predicts that bankruptcies of speculative grade companies will not peak until 2010. It predicts a default rate of over 14% in the first months of 1010, compared with less than 10% in June of 2009 and 0.8% in November 2007. Therefore, now is the time to be most diligent in recovering debt. The importance of acting swiftly to recover any delinquent account cannot be underestimated.

Dont let your clients waste time with wishful thinking. Early referral to a commercial debt liquidation attorney puts any business to the front of the line of the debtors attention. A law firm letterhead and demand letter quickly enables determination of whether amicable recovery of the delinquent account is possible, or whether legal action is needed while there is a reasonable opportunity that your debtor is still viable to provide collection. Get clients off the starting block quickly, positioning them to win the race with the other creditors chasing the assets of a delinquent debtor.

The Primerus Commercial Debt Liquidation Group (CDLG) was formed with the specific objective of creating a comprehensive network of attorneys that devote a significant part of their practice to the liquidation of commercial debt. Last year, Group members recovered millions of dollars of bad and doubtful debt for clients from business debtors located throughout the North America and beyond.

For more info on the Commercial Debt Liquidation Group or Kohner Mann & Kailas, visit the International Society of Primerus Law Firms or kmksc.com.

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