Debtor’s Plan Pledges up To 10% Recovery for Unsecured Creditors. I read this recent headline a couple of times. Then I stopped to think about what it actually means to unsecured creditors. What it really says is that unsecured creditors could receive as much as ten cents on the dollar… but are guaranteed absolutely nothing. Payment will be somewhere between 0% and 10% of the approved unsecured claim amount in this bankruptcy.
Have you been fooled by hearing what you wanted to hear instead of what the debtor actually said. I have. One example involved a multi-million dollar payment I needed by the end of the calendar year. The A/P rep told me the check would be issued without fail on the 23rd of December. What he failed to mention was that the company was on furlough from December 21 to January 2nd so there was no one to mail out the check. Ouch.
Some debtors find ways around unwary collectors. Consider this simple statement: “We will issue a check for the past due amount on Friday of this week.” What the debtor actually said was that a check would be generated on Friday. They did not say the check would be signed on Friday, and they certainly never promised it would be mailed on Friday. There are plenty of debtors that cut checks and then hold them until they decide which creditors must be paid, and which can be delayed even longer.
Here is another deceptively simple statement: “I expect the check to be signed and the payment to be mailed to you by Friday of this week at the absolute latest.” This is not a commitment for payment. I would describe it as more like a weather forecast than a payment promise. Why? Because the two words “I expect” were included. What happens if the payment is not made as agreed? You learn that what the A/P contact expected to happen did not occur.
The solution is to require specificity from your customers. This requires attention to detail on the part of collectors. For example, when on a collection call, you should know the full name, title and phone number/extension of the person with whom you are negotiating. Collectors need to listen carefully to determine whether debtor has made an unqualified commitment for payment. Collectors should always take the time to verify a commitment by repeating back the commitment and asking the debtor to confirm it. Also, if a collector has any concerns about a commitment being broken, they should: (1) ask the debtor’s representative to agree to call you if their commitment changes for any reason, and (2) call the day payment is scheduled to get the check number and confirm the payment is in the mail.
Please reply with other solutions and experiences to the “hearing what you want to hear” phenomenon.
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.