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creditor perspective

I was unable to recover monies owing to me from a client of mine. The client went under and it had owed me a significant amount of money. It appears the bankruptcy laws are there to protect the debtor rather than a creditor. I am the one who pays in the end.

The bankrutcy laws in Canada should not permit bankruptcy to wipe out debts. It is my money they are writing off. This uncollectable debt caused me to fold my small business. I read the postings on this site and there are so many questions concerning how to get out of the debt. Collection agencies are trying to collect what is owed. Posters on this site complain about collectors. Collectors are not evil demons. I know they are unpopular but they are just earning a living.

One Response to “creditor perspective”

A licensed trustee said...

You may want to read the first paragraph of my comments for the last entry (Surplus Income). The Bankruptcy and Insolvency Act is in attempt to balance the needs of the people who are in debt with the rights of the people that lend money.

Taken from an individual creditor’s perspective, the Act may seem biased towards the debtor. Keep in mind that in order to be eligible to file bankruptcy a person must first be insolvent (unable to pay their debts as they come due). When a person files bankruptcy whatever assets they may have of value are signed over to their trustee for the benefit of their unsecured creditors.

In other words, bankruptcy costs the person filing everything they own of value.

Contrast that with the average creditor – the money that they are owed by the bankrupt represents a portion (with commercial lenders a very small portion) of the creditor’s net worth. Bad debt (customers that don’t pay) is a cost of doing business.

Where the system breaks down is with small lenders (often tradesmen fall in to this category) that aren’t in the business of lending money and therefore aren’t sophisticated enough to properly assess credit worthiness or risk. These lenders may fall into financial hardship when one of their customers files bankruptcy, in fact many end up filing bankruptcy themselves in these situations.

All I can suggest to these smaller creditors is that they take the steps necessary to protect themselve to the extent that they can when they grant their customers credit.

If you are not in the business of lending then try not to extend credit. Use retainers, progress billing, take security or personal guarantees from your customers. I know what you’re thinking – if you do these things you will lose customers and that may be true. What you need to determine is the level of risk (that a customer won’t be able to pay) you are willing to accept if/when you are going to extend credit.

Granting credit is not for the faint at heart. It should only be granted if you are willing to accept the risk that the money may not be repaid.