Service Area: Collection Services

Business Bankruptcies Are Rising; Time to Protect Your A/R

Posted on May 2, 2025 by Kristin Alford - Credit Risk Management, Mechanic's Liens & Bond Claims, UCC Financing Statements

The Bankruptcy Wave Isn’t Coming… It’s Already Here.

According to Epiq AACER and the American Bankruptcy Institute, commercial Chapter 11 filings in March 2025 jumped 20% over the previous year. The trend has continued into 2025, with key sectors like retail, construction, and healthcare feeling the pressure.

Why the increase? Inflation. Interest rates. Unstable supply chains. And yes, tariffs. Financial pressure is mounting, and when a business collapses, creditors often end up with nothing but unpaid invoices.

If you’re a supplier, lender, contractor, subcontractor, or equipment lessor, it’s time to take control. Let’s review what’s happening, what it means, and how tools like UCC filings and mechanic’s liens offered by NCS Credit, can help you get paid in the event your customer defaults on payment terms or files for bankruptcy protection.

Understand How Chapters 7 & 11 Bankruptcy Work

If your customer files for bankruptcy protection, here’s what you need to know:

Chapter 7: Liquidation

The company shuts down, and a court-appointed trustee sells off its assets.
Creditors with secured claims (like those with a properly filed UCC or lien) are paid first.
Unsecured creditors? Often left with nothing.

If you’re not secured, Chapter 7 can leave you out in the cold.

Chapter 11: Reorganization

The business continues operating while restructuring its debts.
Debtor proposes a plan to restructure and repay creditors over time.
Secured creditors have a much stronger position at the table.

Bottom line, whether it’s Chapter 7 or 11, secured creditors are in a better spot to get paid, and you become a secured creditor by filing UCCs and mechanic’s liens.

Did You Know: Receiving $0.98 on the dollar, secured creditors recovered 77% more than unsecured creditors in 2024 Chapter 11 bankruptcies.

Payout Priority in Bankruptcy Cases

The bankruptcy code is specific, detailed and, well…it’s long – but here is the basic payout priority:

Payout Priority in Chapter 11 Bankruptcy

Secured Creditors (i.e. creditors who have a perfected security interest)
Administrative Expenses (i.e. costs associated with filing & processing the bankruptcy)
Unsecured Creditors (i.e. creditors without a security interest)

Why Business Bankruptcies Are Increasing

From late 2023 through 2025, business insolvencies have steadily increased. Here’s what’s driving it:

Inflation continues to shrink already-tight margins.
Interest rate hikes are making it more expensive to borrow and refinance.
Shifting consumer behavior is hammering retailers and service providers.
Slow payments in construction and manufacturing are causing ripple effects throughout the supply chain.
New tariffs on imported goods are increasing costs across multiple industries.

When one business can’t pay, others downstream feel the impact. If you’re extending credit, you’re carrying the risk.

Industries Under Pressure

Here’s where we’re seeing some of the fallout:

Healthcare: Hospitals and medical suppliers are struggling with reimbursement cuts and labor shortages.
Automotive: Parts suppliers are facing reduced EV demand, tariff pressures, and rising material costs.
Casual Dining: Rising labor and food costs are squeezing margins as customer traffic drops.
Retail: Several national chains have filed for bankruptcy amid online competition and falling in-store sales.

How Tools Like UCC Filings and Mechanic’s Liens Can Protect Your Payment Rights

Here’s the good news: you have legal tools to protect your payment rights.

File a UCC-1 Financing Statement

If you’re financing equipment, inventory, or receivables – or even just extending credit – file a UCC.

Why it matters:

Puts the world on notice you have a security interest.
Establishes your priority if your customer files for bankruptcy.
Helps you recover your collateral or proceeds from its sale.

Pro Tip: First to file = first in line. Don’t wait.

Secure Your Mechanic’s Lien Rights

If you provide labor, materials, or equipment to a construction project, mechanic’s liens are your best friend.

Why use them:

Gives you a legal claim against the improved property.
Puts pressure on owners and GCs to resolve payment issues.
Protects your position in and outside of bankruptcy.

Pro Tip: Lien rights are time-sensitive and vary by state. Know your deadlines and send preliminary notices when required.

Do Secured Creditors Really Get Paid?

Yes, secured creditors really do get paid. Although every bankruptcy plan is different, here’s a chart of recent bankruptcy exits, and the amount recovered by secured creditors versus the unsecured creditors.

In review of commercial bankruptcies with plans effective 01/01/2023 – 10/01/2024. On average, secured creditors recovered 96% of allowed claims and unsecured creditors recovered 5.4% of allowed claims.

A Little Paperwork Now Beats a Big Loss Later

Bankruptcy doesn’t just affect the debtor; it sends financial shockwaves through the entire supply chain. A little paperwork up front, like filing a UCC or securing mechanic’s lien rights, can be the difference between getting paid and writing off a loss.

By understanding and using tools like UCC filings and mechanic’s liens, you can better navigate the complexities of the current economic landscape.

We Are Your Credit Ally

Whether you’re filing UCCs or mechanic’s liens, from a single request to a robust full-service program, we are your Credit Ally. With unparalleled industry expertise, we understand the complexities of commercial credit. Let us manage your secured transactions and save you time and money. Contact us today to learn more!

Be proactive. Be secured. And most importantly: get paid for the work you do.

Navigating Credit Trends in 2025

Posted on January 6, 2025 by Kristin Alford - In Other Commercial Credit News

Navigating Credit Trends in 2025: Embracing Technologies and Economic Shifts

Happy New Year! With a new year comes new opportunities and, of course, new challenges. Credit management is preparing for significant transformation this year. Rapid advancements in technology, shifting regulatory landscapes, and changing economic policies are reshaping the way businesses assess and manage credit risk. For companies looking to stay ahead of the curve, understanding these developments will be key to minimizing credit risk and maximizing profitability.

The Role of AI in Credit Management

Artificial intelligence (AI) is revolutionizing credit management by providing businesses with powerful tools to streamline processes, assess credit risk more accurately, and enhance decision-making.

AI’s ability to process vast amounts of data, identify patterns, and predict future trends is helping companies move from reactive to proactive credit management strategies.

Automated Credit Scoring: By analyzing alternative data sources such as payment histories, social media activity, and even behavioral data, AI algorithms can create more accurate credit profiles, reducing the risk of defaults.
Risk Prediction Models: Machine learning models are increasingly being used to forecast potential credit defaults, helping businesses identify high-risk clients and adjust payment terms accordingly.
Fraud Detection: AI’s capabilities in anomaly detection are being applied to credit card transactions and loan applications, making it easier to spot fraud and mitigate financial losses.

As with any technology, it’s important to note AI is still relatively new and certainly not without flaws. Evaluating and managing credit still needs humans – Credit Heroes. Credit Heroes have much more experience with nuances of business credit and the business relationship itself. You will remain vital in credit management.

Shifts in Regulatory Landscape and Its Impact on Credit Risk

The regulatory environment surrounding credit is evolving rapidly, with new policies and guidelines shaping how businesses manage credit risk and report financial data.

Keep an eye on Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance. Financial institutions and businesses are under increasing pressure to meet AML and KYC standards. Regulatory bodies are enforcing stricter compliance, requiring businesses to implement more sophisticated systems for verifying the identities of customers and monitoring transactions.

Economic Policies and Their Effect on Payment Terms and Liquidity

Economic policies, including interest rates, fiscal measures, and inflation control strategies, will play a significant role in shaping business credit practices.

Some trends to monitor this year include:

Interest Rate Movements: Central banks around the world are adjusting interest rates in response to inflation and economic growth patterns. Higher interest rates can increase the cost of borrowing, making it more expensive for businesses to extend credit to customers. Companies may need to adjust their payment terms or credit policies to mitigate the impact of higher borrowing costs.
Inflation and Payment Delays: Inflation, particularly in the wake of global economic uncertainty, may lead to longer payment cycles as businesses struggle with rising costs and cash flow constraints. Companies should implement secured transactions (UCC filings and mechanic’s lien processes) to improve cash flow and working capital.
Government Stimulus and Support Programs: Some economies may introduce stimulus programs or financial relief measures to support businesses during downturns. These programs can impact payment terms and credit risk as businesses navigate periods of economic volatility.

Filing UCCs and Protecting Mechanic’s Lien Rights

As businesses face evolving credit challenges, protecting financial interests through strategic secured transactions is critical, especially in industries like construction, manufacturing, and distribution where physical goods and services are exchanged. Fortunately, UCC filings and mechanic’s liens are our areas of expertise!

Filing UCCs (Uniform Commercial Code filings) and securing mechanic’s lien rights are essential to protect against nonpayment and aid in the collection of outstanding debts.

UCC Filings: Securing Interests in Personal Property

A UCC filing, also known as a UCC Financing Statement or UCC-1, is a document filed with the Secretary of the State which serves as public notice of a creditor’s security interest in certain collateral owned by their customer.

UCCs should be filed by any business that extends credit to its customers. If you sell goods or services on credit, you should file a UCC-1 Financing Statement to establish your interest in the goods provided. Then, in the event of nonpayment, you have the right to repossess your inventory or equipment.

Mechanic’s Lien Rights: Protecting Contractors and Suppliers

For construction-related businesses, mechanic’s liens are a powerful legal tool to ensure payment for work completed or materials supplied. Typically, a mechanic’s lien can be filed by contractors, subcontractors, suppliers, or other parties involved in the construction process to protect their right to payment.

A mechanic’s lien places a legal claim on a property until the debt owed for labor, services, or materials is paid. In the case of nonpayment, the lien can be enforced by forcing the sale of the property to recover the outstanding balance.

Each state has different rules and deadlines for filing a mechanic’s lien, but most require that the lien be filed within a specific time frame after the work is completed or materials are delivered. Failure to file within the window can result in losing the right to enforce the lien.

Both UCC filings and mechanic’s liens provide crucial protection for businesses in high-risk industries.

Credit Management in 2025 and Beyond

The credit landscape will be shaped by technological innovations, regulatory changes, and evolving economic policies. To stay competitive, you must adopt forward-thinking credit management strategies, maintain compliance with changing regulations, and remain adaptable to economic shifts. Additionally, using legal tools such as UCC filings and mechanic’s liens will be critical to minimize credit risk and maximize profitability.

Invest in Credit Tech Solutions: Embracing technology, such as AI-driven credit risk assessment tools, will be critical for businesses looking to stay competitive.
Strengthen Data Analytics Capabilities: Companies that leverage data analytics and machine learning to predict trends, optimize credit terms, and reduce risk will be well-positioned to succeed.
File UCCs and Mechanic’s Liens: In an uncertain economic climate, businesses must protect receivables, inventory and equipment. UCC filings and mechanic’s liens are legal tools proven to get you paid.

NCS Credit, Your Credit Ally

Every Credit Hero needs a Credit Ally! We are the industry’s only B2B full-service provider of UCC filings, mechanic’s liens and commercial collections. With unparalleled industry expertise, we understand the complexities of commercial credit.

NCS Credit’s Online Services is built for the busy credit professional, empowering you to quickly, efficiently and accurately protect your receivables in an easy-to-use central system. With a single login you have access to a powerful platform to manage collection placements, UCC filings, notices & mechanic’s liens, lien waivers and more!

Powered by our knowledgeable staff and fueled by technology, we will simplify your current process and deliver a best-in-class client experience. Contact us today to learn more!

Past-Due Accounts: Collection Agencies vs. Write-Offs

Posted on September 26, 2024 by wpengine - Credit Risk Management

Consider Trying a Collection Agency Offering Contingent Services

Today’s 3-in-3 features NCS Credit Attorney, Michelle Gerred. Read on to learn more about why you should use a collection agency offering contingent collection services, like NCS, before writing off bad debt.

What Is a Contingent Collection and How Does It Work?

Michelle: NCS will work the commercial collection placement on a contingent basis, meaning the fee you pay is contingent upon and a percentage of the amount of money NCS successfully collects.

The collection placement can be secured or unsecured and managed by our in-house collection experts or through an attorney.

Once we receive the commercial collection placement and supporting documentation, we will complete additional research on your customer to see if we can find alternative addresses, phone numbers, and contacts to reach out to. Then we send an initial demand letter, along with proof of the past-due debt (such as invoices or a statement of account) to your customer.

Depending on the service you select, we may begin contacting customer via phone and email to see if we can collect the money owed (possibly setting up a payment plan) or help resolve any existing dispute.

What Are NCS’ Different Services and What Are the Differences Between Them?

Michelle: We provide both in-house and attorney services. Let’s focus on our in-house services. For in-house collections, we offer 2 different services: 10-Day Free Demand and Immediate Collection Placement.

With our 10-Day Free Demand, we send a demand letter to your customer. If payment is received (and you report the payment to NCS) within 10 days, no collection fee is due. Essentially, if your customer pays within 10 days from the date of the demand, and you let NCS know you’ve been paid, the demand letter is free! So, what happens if your customer doesn’t pay? On day 11 we begin actively working the collection, which will include calls to your customer, and our contingent collection rate will apply.

With our Immediate Collection Placement, we begin contacting your customer within 24 hours of receiving the placement and our contingent collection rate applies.

Why Should I Try Collection Agency Over Simply Writing Off the Debt?

Michelle: I think the better question is why wouldn’t you try? Write-offs are expensive! The cost to write off bad debt is not just the amount of the bad debt; it costs a great deal more to recover that lost revenue. For example, if you write off $50,000 at a 30% margin, you would have to generate $166,667 in additional sales to recover that lost profit.

3-in-3 Takeaways

Contingent collections are a great alternative to writing off past-due accounts.
The cost of a write-off is more than the cost of the debt.
NCS, a reputable commercial collection agency, provides different services to best meet your collections needs.

Wondering what to do with your past-due accounts? Contact us & our in-house collection experts will review your situation and provide you with possible solutions!

Editor’s Note: This content was originally published in February 2017. It has since been updated and revised for 2024.

Bankruptcy Proof of Claim: Don’t Forget!

Posted on June 15, 2023 by wpengine - Credit Risk Management, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit, UCC Financing Statements

Bankruptcies Are on the Rise; Remember Your Bankruptcy Proof of Claim

It’s “officially” unofficial, we may be heading into another recession. Think back to 2008 and you’re sure to remember the painful increase in debtor defaults and bankruptcies; virtually no creditor’s AR escaped unscathed. With bankruptcies on the rise, it is increasingly likely you will need to complete a bankruptcy proof of claim either as a secured or unsecured creditor.

The Secured Creditor Ideal

In the event of a debtor’s bankruptcy, you will ideally be a secured creditor who properly filed a mechanic’s lien, bond claim or UCC. Secured transactions are proven to put creditors in the best possible position to get paid, though there are additional securities available such as a Corporate Guarantee or Personal Guarantee.

What is a Bankruptcy Proof of Claim?

A proof of claim is a document filed within the bankruptcy court that alerts the court, debtor, Trustee, and other interested parties that a creditor wishes to register a claim against the assets of the bankruptcy estate. This document is important because it provides proof that the claim is valid and owed, and notifies the Trustee of the creditor’s claim as well as to what class the claim should be associated.

What Information is Included in the Bankruptcy Proof of Claim?

The U.S. Bankruptcy Court’s official form includes fields for various pieces of information such as creditor name and location, the amount of the claim, the basis of the claim, whether the claim is secured, if the claim is based on a lease, and whether the claim is subject to right of setoff.

A Class to Associate the Claim?

Yes, in bankruptcy proceedings, creditors are put into various classes. The bankruptcy code is specific, detailed and, well…it’s long – but here is the basic payout priority:

Payout Priority in Chapter 11 Bankruptcy

Secured Creditors (i.e. creditors who have a perfected security interest)
Administrative Expenses (i.e. costs associated with filing & processing the bankruptcy)
Unsecured Creditors (i.e. creditors without a security interest)

Here’s an example of the class breakdown in the recent bankruptcy plan for Fred’s, Inc.

And here’s the Summary of Estimated Recoveries for Claims and Interests:

I’ll take this opportunity to point out that secured creditors often fair far better than unsecured creditors. In this bankruptcy, it is estimated that secured creditors will recover 100% of their claims, while unsecured creditors will receive between 4%-8.8% of their claims.

A Bar Date? Like a Date at a Bar?

Bar date and date at a bar are most definitely two different things, though it’s possible they have the same level of fun & excitement. Depending on the bankruptcy, a Bar Date may be set by the court. This date is a deadline by which all creditors must file their proof of claims within the bankruptcy court. It is critical that the proof of claim is filed correctly and timely, whether it’s secured or unsecured, to ensure creditors’ rights are preserved and to maximize any possible distribution.

What You Should Do

When a creditor receives notice that their debtor has filed bankruptcy, the notice should be reviewed to determine if a proof of claim needs to be filed.

Be on Time: Too often, creditors miss the bar date to file.
Know your Claim: Include all amounts owed for all accounts and affiliates.
Secured or Unsecured: Know whether you are a secured creditor and file properly.

Note, a creditor can have a secured & unsecured claim in the same bankruptcy.

Need Help?

Let us prepare, file, and monitor for a recorded proof of claim! For more information on how NCS Credit can assist in filing your bankruptcy proof of claim, contact us today.

Bankruptcy Proof of Claim Is Late

Posted on May 9, 2022 by wpengine - Credit Risk Management, In Other Commercial Credit News

“Judge, My Bankruptcy Proof of Claim is Late, But I Have a Good Reason!”

And What’s the Reason? “Um, I Forgot My Password.”

We’ve discussed bankruptcy proofs of claim before and the importance of filing them timely (i.e., don’t miss the bar date!). And when this case crossed my desk, I couldn’t help but share it with you. Why? Because it’s a $53 million example of the bankruptcy courts not messing around. When the bar date is set, you’d better have a darn good excuse for missing it, because a deadline is a deadline – you miss it, you lose it. What’s a good excuse? Well, I’ll give you a hint, waiting until the last minute and forgetting your password is not a good excuse, as one attorney discovered.

Briefly, What Is a Bankruptcy Proof of Claim?

A proof of claim is a document filed within the bankruptcy court that alerts the court, debtor, Trustee, and other interested parties that a creditor wishes to register a claim against the assets of the bankruptcy estate. This document is important because it provides proof that the claim is valid and owed and it notifies the Trustee of the creditor’s claim as well as to what class the claim should be associated.

The Bar Date is a Deadline, Don’t Miss It

The Case: In re U-Haul Co. of W. Va., 2:21-bk-20140 (Bankr. S.D.W. Va. Dec. 10, 2021)

Quick Backstory: About 10 years prior to the bankruptcy filing, there was a class action lawsuit against U-Haul. The Ferrell Class (the class action claimant) was comprised of over 320,000 claimants and sought over $53 million in compensation from the lawsuit.

Fast Forward to Bankruptcy Case: U-Haul Co. of W. Va. filed for bankruptcy protection June 2021. On July 23, 2021, the Clerk of Court set the bar date for August 25, 2021 (So, all parties with claims had a little over a month to file their claim.)

A separate order was entered to allow the Ferrell Class to file claims on behalf of the entire class – which makes sense — what a pain it would be to deal with 320,000+ individual claims. When the court entered the order for the Ferrell Class to file its claim, it included the following:

“The deadline for the Class Claims is August 25, 2021 at 11:59 p.m. The Class Claims must be actually received by the Clerk of the Court on or before that date and time, or such claims shall be forever barred.”

The order also included the various ways to submit the claims: file electronically, in person, via mail, etc.

Claim is Late, Debtor Wants the Claim Barred: OK, I’m going to paraphrase here, but essentially the attorney filing the claim on behalf of the Ferrell Class sat down at his computer late in the day on August 25. He goes to log in to PACER (court electronic filing system) to file the claim, but he can’t remember the login information. I picture someone saying “Uh, the dog ate my homework” but circa 2021/2022 with “Um, Judge, I can’t remember my password.” Because it’s after business hours, there is no one to help him reset his online access, AND since he waited till the last minute, he scrambled to try and do the next best thing… email?

According to the court opinion, the attorney “emailed the Ferrell Class Claim to all counsel in the case one hour and twenty-six minutes late and filed the claim nine hours and 45 minutes late upon obtaining the correct filing credentials.”

The court was not amused. I’m picturing a student being scolded by a teacher – “You’ve had ample time. You’ve done this correctly before. I don’t understand what the problem is.” Of course, the court wasn’t quite so casual or crass, and heard the attorney out.

But It’s an Honest Excusable Mistake: Ultimately, the debtor wanted the Ferrell Claim barred because it was late. The attorney for the Ferrell Class argued that “technical difficulties” (i.e., I can’t remember my password) made it impossible for him to file his claim, and the claim should be allowed as timely under the “excusable neglect” standard.

I will save you from the cringeworthy efforts and excuses (though you can click here to read it in the opinion) and summarize: the attorney pleaded with the court to not punish the class for the missteps of the attorney.

Alas, the court determined the attorney’s neglect was inexcusable. “The reason for the delay in filing was entirely within the control of counsel to the Ferrell Class… the Ferrell Class had ample notice of the Bar Date as well as the dire consequences that would result from missing the deadline.”

Oh boy, here it comes:

“This failure to plan and allot necessary time to file the proof of claim was not due to any “technical difficulties” as the Ferrell Class asserts. The Ferrell Class does not allege that the late filing was caused by any defect of the CM/ECF system. It is no excuse that the Clerk’s office was closed when counsel attempted to file the claim after business hours on the night it was due. Counsel had over a month to file the claim, during which he could have contacted the Clerk’s office during business hours at his convenience. The deadline was missed in this case due to a careless disregard for the Bar Date, applicable Bankruptcy Rules, and the explicit terms of the Bar Date Order. Compliance with the deadline (or not) was entirely within the control of counsel to the Ferrell Class, and the failure to comply under these circumstances is inexcusable.”

What’s the saying?

“A lack of planning on your part does not constitute an emergency on my part.”

Yeah… it fits.

This is a painful – $53M painful – lesson in missed deadlines.

Creditor in a Bankruptcy? Always Remember

Be on Time: Too often, creditors miss the bar date to file. Today’s case in point!
Know your Claim: Include all amounts owed for all accounts and affiliates.
Secured or Unsecured: Know whether you are a secured creditor and file properly. (Note, a creditor can have a secured & unsecured claim in the same bankruptcy.)

Need Help? NCS can assist in filing your bankruptcy proof of claim, contact us today!

Bankruptcy Proof of Claim: What if It’s Late?

Posted on January 3, 2022 by wpengine - Credit Risk Management

What Happens to Your Claim if Your Bankruptcy Proof of Claim is Late?

Bankruptcy proofs of claim are your key to ensuring the Trustee is aware of funds owed to you by the bankrupt party. And, just like filing UCCs or mechanic’s liens, there are deadlines in play for proofs of claim. What happens to your claim if your proof of claim is filed late? A Bankruptcy Court in North Carolina recently decided one creditor was not entitled to distribution of funds, because its proof of claim reached the court one day after the bar date.

The Bankruptcy Proof of Claim

The U.S. Bankruptcy Court’s official form includes fields for various pieces of information, such as creditor name and location, the amount of the claim, the basis of the claim, whether the claim is secured, if the claim is based on a lease, and whether the claim is subject to right of setoff.

The Bar Date

The bar date is a deadline by which all creditors must file their proof of claims within the bankruptcy court. It is critical that the proof of claim is filed correctly and timely, whether it’s secured or unsecured, to ensure creditors’ rights are preserved and to maximize any possible distribution.

A Day Late Means Your Hanging Out with the General Unsecured Creditors

In the bankruptcy case of North Carolina New Schools, Inc., the bar date was set for September 13, 2016. One creditor, WorkSmart, Inc., mailed its proof of claim around September 7, 2016, and its claim was received by the court September 14, 2016. One day after the bar date. The bankruptcy Trustee filed an objection to avoid the creditor’s claim, arguing the creditor failed to file its claim timely. The creditor filed a response, claiming a “…’mailbox presumption’ creates a rebuttable presumption that the Claim was received in the ordinary course of business.”

A mailbox presumption? Yeah, I didn’t know what it was either. According to the court “The mailbox presumption is a common law evidentiary principle that permits a party to prove receipt of a document that has been mailed.” Essentially, the creditor argued that because the document was allegedly mailed timely, it should be considered received timely. And although I initially chuckled at the word “common” it is apparently a popular topic. The court went on to explain that courts are split, and there isn’t a definitive answer as to whether the mailbox presumption should apply in the mailing of a proof of claim.

Unfortunately for this creditor, the court decided there is a difference between service of a document and the filing of a document (we just talked about this in another post), and it is the creditor’s responsibility to ensure the document is filed by the deadline.

“…applying the mailbox presumption to the mailing of a proof of claim would complicate, bring uncertainty, and cause undue delay to the bankruptcy claims process. Setting a bright-line rule for the filing of claims is vital to the timely administration of a chapter 7 case. Creditors, with minimal expense or inconvenience, can ensure that a proof of claim is received by the clerk’s office before the deadline by filing their claims electronically or directly at the clerk’s office counter, using some form of priority or overnight mail, or calling the clerk’s office to verify the receipt of the claim.”

And just like that, the creditor’s claim for $169,569 was not entitled to distribution, because it was filed a day late.

The Bankruptcy Proof of Claim Lesson

Make sure your proof of claim is received by the bar date. Navigating a proof of claim? Contact us today and let our experts help you!

Survey: Securitization on A/R During the Pandemic

Posted on July 12, 2021 by wpengine - In Other Commercial Credit News, Mechanic's Liens & Bond Claims, UCC Financing Statements

Credit Research Foundation Survey: The Use & Impact of Securitization on A/R During the Pandemic

Originally published in The Credit Research Foundation’s Perspective newsletter (June 2021)

The Credit Research Foundation recently surveyed their membership on the use and impact of securitization (UCCs, mechanic’s lien, etc.) on accounts receivable during the pandemic. The survey explored the use of securitization as a risk mitigation tool.

“I Believe There Will Be an Increase in Bankruptcies During 2021.”

Unsurprisingly, 88% of respondents believe there will be an increase in bankruptcies in 2021. In general, 2020 saw a low rate of bankruptcies, in fact Epiq reported bankruptcy filings across all chapters were at their lowest point since 1986. However, commercial Chapter 11 bankruptcies continued to rise year over year, with a 29% increase in 2020, for a total of 7,128 filings. Forecasts indicate bankruptcy filings will increase in 2021, with a predicted spike in Q3 2021.

Why Will Bankruptcy Filings Increase in 2021?

This is certainly a question on many credit professionals’ minds as the challenges of the economy, government stimulus and indebtedness in the marketplace plague the overall portfolio risk of many organizations. Additionally, Congress extended Sub-Chapter 5 of the Bankruptcy Code (small business) and the grace period to file under the extended debt levels ($7.5 million) an additional year, which now expires in March of 2022. Given these factors there seems to be an awareness to the potential for at least certain segments of the economy to file for bankruptcy. Anecdotally, conversations from many members of the Foundation have all eyes on Q3 and Q4 of 2021 as a pivotal and anticipated point for the next level of bankruptcy activity.

In an earlier NCS survey, 62% of respondents were actively monitoring their customers for bankruptcy. Continue to monitor your customers, and if there is a bankruptcy, ensure to complete your Proof of Claim by the bar date.

“Our Company Has Been an Unsecured Creditor in a Bankruptcy and Recovered Less Money Than Secured Creditors.”

An overwhelming 90% of respondents have suffered as unsecured creditors in a bankruptcy, watching from the sidelines as secured creditors recovered payments in full. These losses are preventable and at minimal cost. Secured transactions are your greatest defense against customer failure. Time & time again, we see secured creditors receive payment in full while unsecured creditors receive pennies on the dollar.

For example, Katy Industries, a leading manufacturer, importer, and distributor of commercial cleaning and consumer storage products, filed for bankruptcy when it was unable to meet the obligations of its creditors, with nearly $56 million of debt. In this case, secured creditors recovered the total amount of allowed claims (100%) while unsecured creditors faced a recovery rate of only 9.6%.

Another example comes from the healthcare industry. Holmes, Inc., provided health & wellbeing programs nationwide. When it filed for bankruptcy protection, its capital deficit was $31.5 million. According to the bankruptcy plan, secured creditors were to receive 100% of their claims and unsecured creditors were to receive approximately 3.5% of their claims.

Need more? In the Hostess bankruptcy, secured creditors recovered 100% and unsecured creditors recovered 0. In Kodak’s bankruptcy, secured creditors recovered 100% and unsecured creditors recovered 4-5%. Then there was Uno, where secured creditors received 100% and unsecureds received 13%. And HomeBanc Corp. distributed 100% of claims to secured creditors and unsecureds recovered anywhere from 1-10%.

“Our Company Currently Secures Our Accounts Receivable, Either in Full or Partially.”

83% of respondents currently secure their A/R. For the 17% who don’t currently secure A/R, the top two cited reasons are concerns about customer reaction and the costs associated with securing A/R, followed by no significant write-offs, no need, and reliance on 503(b)9 claims. A respondent from the manufacturing industry stated they do not secure A/R because “We have an 85% recovery rate as a Critical Vendor in our industry.”

Let’s circle back to the top two cited reasons for not securing A/R: concerns about customer reaction and costs. First, it’s OK to be nervous about how your customer will respond to your request for a signed Security Agreement (needed to file UCCs) or your customer’s reaction when they receive a preliminary notice (needed to secure mechanic’s lien rights) via certified mail. But rest assured, these are traditional business practices that do not harm your customer’s creditworthiness or cost your customer a dime. UCCs and preliminary notices/mechanic’s liens secure your right to recover payment in the unlikely event your customer defaults or files bankruptcy. If your customer never defaults or files for bankruptcy, it’s as though the UCC/lien never existed.

As for the costs associated with UCCs and preliminary notices/mechanic’s liens, they are nominal compared to the hundreds of thousands of dollars you could lose as an unsecured creditor. These are general numbers, but a blanket UCC filing may cost around $100 and a PMSI filing with search & notify may cost around $175, and the protection is in place for 5 years. As for preliminary notices/mechanic’s liens, let’s focus on the preliminary notice. Why? Because research shows 97.3% of the time a preliminary notice is enough to get you paid. Generally, a preliminary notice may cost around $60 per project. Now, mechanic’s liens may have a higher price tag ($500+) but again, when compared to what you could lose, it’s a small price to pay.

Lastly, I do want to mention that 503(b)9 claims are a great resource; however, there are some pitfalls. The bankruptcy code was amended in 2005 to include a new administrative claim: 503(b)(9). With the addition of 503(b)(9) claims, some creditors became complacent. The availability of a 503(b)(9) claim seemed to misleadingly allay creditor concerns, “Nah, I don’t need UCC filings. We just file a 503(b)(9) to get paid.” This somewhat false sense of security can easily cost creditors millions of dollars.

Under 503(b)(9), creditors may file a claim for “the value of any goods received by the debtor within the 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.”

As you can imagine, there are challenges with 503(b)(9) claims. High-profile cases are in heated debate over the definition of “received by” for the 20-day rule. And, of course, there is the question of what constitutes a “good” because services are not covered under these claims, and whether those goods have been sold in the ordinary course of business.

A member of the panel at CRF’s Fall Forum, Judge Christopher S. Sontchi, Chief Judge of The United States Bankruptcy Court for the District of Delaware, has presided over several cases determining “goods” and “receipt.” Notably, in one case, Judge Sontchi looked to the UCC definition of goods and subsequently held that electricity is not a “good” under 503(b)(9).

To be clear, a UCC filing is not without potential obstacles. Your UCC must be properly perfected and there is a narrow margin for error. But, ensuring a UCC has been properly perfected is less cumbersome than proving goods are goods, defining date of receipt and verifying goods are sold during ordinary course of business.

Rounding Out the Survey

How Are Creditors Securing A/R?

For creditors securing their A/R the top two security measures were Cash in Advance and UCC filings.

Biggest Concerns with UCC Filings

Despite concerns surrounding UCC filings, respondents certainly recognize the benefits of UCC filings. Benefits include being a secured creditor in a bankruptcy, the ability to repossess goods if customer defaults, the customer will consider creditor a greater payment priority and there would be public record of the debt.

Biggest Concerns with Protecting Mechanic’s Lien Rights

Similar to what we see with UCC filings, respondents agree protecting mechanic’s lien rights would make them a secured creditor in the event of bankruptcy, customers would consider the creditor a greater payment priority and there would be public record of the debt.

Secured Transactions are Excellent Way to Secure A/R

Whether you file UCCs or mechanic’s liens:

You are a priority. In bankruptcy, secured creditors have priority and are paid before unsecured creditors.
You can sell more. Securing your A/R allows you to extend larger credit limits and sell to those accounts that were previously out of reach.
Fewer write-offs. Fewer write-offs lower the costs associated with your product. Lower costs mean you can sell your product at a lower price while maintaining viable profit margins. Selling at a lower price makes your company more competitive, opening the doors to a larger market share. More sales with stable profit margins are a win.
Improved DSO. Here’s a testimonial from one of our clients: “After implementing the lien/notice to owner program, we have seen our DSO numbers steadily decline each month, to an average of around 22 days. That is over a 30% improvement in our DSO since we first partnered with NCS.”
Low cost solutions. UCC filings and preliminary notices/mechanic’s liens are truly a low-cost solution; especially when compared to the costs associated with chasing receivables.

NCS Insights for Credit Management in 2021

Posted on January 11, 2021 by Kiwi - In Other Commercial Credit News

Bankruptcy Climate of 2020, Predictions for 2021, and What You Need to Do to Ensure Your Company is a Secured Creditor

The events of 2020 will not soon be forgotten. A year that began with hope and optimism was quickly darkened by a pandemic that locked down economies for weeks and months. Businesses that had been sluggish prior to the pandemic crumbled as consumers hunkered down at home, many losing their jobs and millions facing a healthcare crisis. Commercial bankruptcy filings increased 29% in 2020, leaving unsecured creditors scrambling to recover pennies on the dollar. In this article we will review the bankruptcy climate of 2020, predictions for 2021, and what you need to do to ensure your company is a protected creditor.

Bankruptcy Current Affairs

Epiq recently reported bankruptcy filings across all chapters are at their lowest point since 1986. However, commercial Chapter 11 bankruptcies continued to rise year over year, with a 29% increase in 2020, for a total of 7,128 filings.

“The peak in Chapter 11 filings for Q2 and Q3 is due to preexisting distressed companies coupled with the onset of a zero-revenue environment. The federal backstop proved a vital lifeline for the stabilization of corporations to protect the US economy,” said Deirdre O’Connor, managing director of corporate restructuring at Epiq. Unsurprisingly, the foodservice industry was on track to lose $240 billion in sales by the end of 2020. Between March & July, the foodservice industry had lost $165 billion, and consumer spending in restaurants was down more than 30%. Restaurant chains that filed bankruptcy in 2020 included Sizzler, Ruby Tuesday, Friendly’s, Souplantation, Chuck E. Cheese, NPC International (parent company for 100s of Pizza Hut and Wendy’s locations), and California Pizza Kitchen. The energy, retail, and consumer services sectors with liabilities exceeding $50M had the most filings since 2009 according to Bloomberg. Amid the pandemic, well known retailers like J.C. Penney Co. Inc., Neiman Marcus Group Inc., Lord & Taylor LLC, Stein Mart Inc., True Religion, Modell’s Sporting Goods, J. Crew Group, Sur La Table, GNC, Ascena Retail Group, RTW Retailwinds, Guitar Center, and Pier 1 Imports filed bankruptcy in 2020. These bankruptcies not only impacted the retail employees, they also trickled up to landlords. As retailers missed rent payments, landlords found themselves suffering losses which sent them into bankruptcy as well. And as oil prices plummeted, energy companies collapsed at an alarming rate. From Latham & Watkins LLP: “In the first 10 months of the year, 101 oil companies with a total of $94 billion in debt filed for bankruptcy. More than 95% of these bankruptcies fell under the upstream exploration and production and oil field services segment with the largest filings being Diamond Offshore Drilling Inc., $11.8 billion, Chesapeake Energy Corp., $11.8 billion, and McDermott International Inc., $9.9 billion.” Then there is the healthcare industry. As if healthcare systems aren’t buried under an immense strain, poor financial health pushed dozens of large health systems to bankruptcy. According to the American Hospital Association “Hospitals face catastrophic financial challenges in light of the COVID-19 pandemic. The AHA estimates a total four-month financial impact of $202.6 billion in losses for America’s hospitals and health systems, or an average of $50.7 billion per month.” Unfortunately, the financial distress pummeling these industries is likely to get worse long before it gets better. Despite the optimism surrounding vaccine rollouts, experts and analysts estimate a large wave of consumer and commercial bankruptcies in the first two quarters of 2021. Commercial bankruptcies are likely to include retail, healthcare, energy and additional industries like gyms, movie theaters, leisure services, and real estate firms.

11 Steps to Take Right Now

Fortunately, there is a silver lining in these grey financial times. Economic uncertainty offers many opportunities to improve your competitive position. Here are steps you can take right now:

Re-examine your existing credit policies.
Make your credit granting process more rigorous.
Ensure your operational systems and customer agreements are in place with accurate and complete credit information.
Research and verify your customers’ legal business names.
Review The National Lien Digest for time and information requirements to protect your lien and bond claim rights.
Monitor and review mechanic’s lien activity in LienFinder.
If your department has been downsized and resources are limited, contact your credit vendors to obtain and verify credit history, credit scoring, UCC or lien searches.
Implement Bankruptcy Monitoring to ensure you are timely notified of any debtor bankruptcy.
Prepare Security Agreements as well as Personal and Corporate Guaranties, which are powerful tools to determine and/or minimize your risk.
Talk to your trade groups and exchange financial information on mutual customers.
Most importantly, secure your collateral.

Laws in Place to Protect Your Company

The U.S. government provides two bodies of law to help you with securing collateral: Article 9 – Secured Transactions of the Uniform Commercial Code (UCC) and The Mechanic’s Lien Laws. Who you are selling to determines which solution will put you in the best position to get paid. Here are several options to consider:

Article 9 provides the venue to secure personal property such as accounts receivable, inventory, equipment, general intangibles, goods, and software.
The UCC benefits your company when a customer defaults or files bankruptcy. If a customer defaults on payment terms and you have a signed Security Agreement that clearly defines default, you now have a breach of contract and can use this tool to repossess your goods or sue for payment.
In a bankruptcy, all creditors are split into two classes: secured and unsecured. In a Chapter 7 bankruptcy, secured creditors are paid first in the date order of the recorded financing statement. Unsecured creditors split what remains on a pro-rated basis, often receiving pennies on the dollar. The UCC filing elevates the status of your receivable to that of a secured creditor.
In a Chapter 11 bankruptcy, all secured creditors have the same status, which provides them with substantial leverage over the unsecured creditors as it relates to liquidation. Now is the time to incorporate the UCC process into your credit policies.
If you restructure past due receivables through installment notes, be sure to secure those notes.

UCC Article 9

Meeting the requirements of Article 9 requires you to collect information to better know and understand your new and existing customers. It is important that you:

Have an updated signed Credit Application.
Know the organization’s legal name and if it is registered with the Secretary of State, as well as its corporate address and shipping locations.
Confirm the names of owners and officers.
Understand your customer’s business and how it is using the products and services you provide.
Verify whether your customer is in a community property state. If so, it is necessary that all liable parties sign all documents.

If you don’t have the time to gather this information, get your sales team involved. Offer a bonus to your team for accurately completed Credit Applications. And encourage them to be creative! For instance, rather than referring to the required but potentially threatening term “Security Agreement,” consider calling it a “Partnership Advantage Program.” Remember when customers turn to you for help, whether they are requesting extended payment terms, are currently past due or are seeking a credit limit increase, you’re in the perfect position to leverage this opportunity to become a secured creditor and reduce your credit risk.

Preliminary Notices, Mechanic’s Liens & Bond Claims

If you work in the construction industry you know that construction credit has its own unique process. To ensure that you’re making good credit decisions, take the time to update customer data and review your procedures. Start with researching your clients’ corporate information. Insist that job sheets be completed for every project, better yet, gather the information electronically with systems like the NCS Job App. Know the project address of where your materials or services are being furnished. Confirm who owns the property and who the general contractor is. You also have the opportunity to tie yourself into the trust fund of monies set aside for the project. To do so you must consistently serve preliminary notices and file Mechanic’s Liens or Bond Claims to secure your accounts receivables. These laws were created to protect owners of construction projects and ensure all contractors, subcontractors, and material suppliers receive the money owed them. Carefully follow the statutory guidelines within each state because small missteps could jeopardize your security. Protect your rights and benefit from your secured interest in case your customer or someone else in the contractual chain defaults or files for bankruptcy. If you are concerned a customer may file for bankruptcy, consider exchanging a carefully worded lien waiver for payment. Currently, that payment may not be considered preferential because the debtor received something in consideration for the payment. Attorneys have successfully used this argument in defense to preference claims. Setting up a defense by using a lien waiver is a smart move, although it doesn’t provide a guarantee.

Credit & Compassion

Every credit professional needs a well-planned credit process with a side of reasonable compassion. Keep in mind that how you treat your customers today will reap great benefits tomorrow. Take a balanced approach and try not to be too aggressive towards a good customer who has recently fallen on hard times. The economy will rebound, and your customer will remember your tempered approach to their situation. After all, it is both what you do and how you do it that earns a client’s loyalty. And a loyal customer is the best hedge to ensure your company’s long-term health.

NCS Is Here for You

In today’s tough economy, working with a responsive, flexible strategic partner is critical. As you spend more time each week extinguishing proverbial credit fires, having an expert to react quickly when special problems arise can make an immense difference. Our expertise in UCCs, mechanic’s liens, and commercial collections, will help you minimize your risk and improve your profitability, and our investments in cutting edge technology found in LienFinder, The National Lien Digest, and LienTracker Online will save you time.