Hundreds of small businesses have sought protection under bankruptcy law
in recent years, and the National Association of Credit Management is pushing for reforms that would make filing for protection easier for businesses, while also benefiting ailing creditors.
The NACM recently released its 2012 Legislative Introduction and Position Brief, which details its belief that reforms in the bankruptcy code and, more specifically, in the bankruptcy preference provisions, would not only help small businesses stay afloat after filing for protection but also allow creditors to more easily recoup losses. In addition, the group notes that the commercial reforms enacted in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act have fallen short of their original goal: to create a balance between creditors and insolvent debtors.
According to the NACM report, preference abuse remains a problem during bankruptcy proceedings that makes it more difficult for creditors to receive what is owed to them. In most cases, trustees send out a blanket demand to all creditors who received payment within 90 days, without regard to their defenses. Rather than allow the burden of proof to rest with the creditor, the NACM contends that it should instead lay with the trustee.
“The reality is that trade creditors face a double jeopardy: they lose funds due to the bankruptcy and are also forced to repay funds already collected,” according to the NACM brief. “This simple fact has put some small companies out of business.”
The group notes that many creditors lack the resources to challenge unfair blanket preference demands and instead settle for smaller payments, the result of which can affect their own bottom lines. However, the group notes that if the Bankruptcy Code was modified to require trustees to prove payments were a preference, they may be less likely to issue blanket demands.