What's the Most Powerful Tool When Someone Owes Your Business A Lot Of Money?
Posted on: 20 September 2016
When you operate a business extending a certain amount of credit to your customers is fairly commonplace. In other words, it is quite usual to invoice your customers for goods or services provided and to expect them to pay for these elements within a certain amount of time. However, sometimes the customer does not fulfil their side of the bargain and this can often lead to protracted requests for payment from your side. Should you consider taking the ultimate action, which is to initiate bankruptcy proceedings against them?
The Trigger Point
Federal law determines that if somebody owes you money in excess of $5000 then you, as a creditor, have the right to initiate bankruptcy proceedings against them. You should note this is usually seen as the last resort and you should have documented paper trails to show that you have gone out of your way to try and recover the debt before considering this.
Initiating Proceedings
One of the first steps is to get your solicitor to initiate court proceedings so that you get a judgement issued for the amount of the debt involved. You or the solicitor will then need to apply to the Official Receiver in your state, who will issue an official notice that requires that the debt be paid within three weeks. If the debtor is unable or unwilling to pay the amount within 21 days then they are judged to have committed an act of bankruptcy.
Once this happens, then a petition can be filed by the creditor in the Circuit Court. This would trigger the court to set a date for a hearing. This gives the debtor the opportunity to explain the situation, or to appeal against the petition, should they feel that they do not owe money for any reason. A sworn affidavit must be provided by the other party with the reasons within. However, if such an affidavit is not provided then the court can judge that the debtor is insolvent and this triggers what is known as a sequestration order.
The sequestration order determines who the creditors are in order of their call against future assets. The entity that initiated the preceding will typically be the first secured creditor. Should usable funds become available during the following three years then they will be allocated to the creditors by the court accordingly.
Ultimate Leveraging
It should be noted that this is the ultimate tool when it comes to trying to recover funds from another party and bankruptcy can have significant repercussions for the debtor. Often, merely the threat of bankruptcy can be enough to get the debtor to repay the amount owed and as such, the simple act of initiating proceedings may be all that you need to consider.
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