I Assume, Redux

caution_w_reflectionIf there are 50 ways to leave your lover, there must be 150 ways that your bankruptcy client can get it wrong.

And at the end of the day, you risk taking flak for the screw up. Fair or not.

So I’ll share this week’s dust up in my office and maybe we all can refine our approach to clients.

In the beginning

Clients operated a small corporation that wholesaled a product they had custom manufactured. When I met them, their SBA lender had sued the corporation and them as individuals for over $200,000.

We agreed that there was no defense to the suit for the corporation and no reason to even consider Chapter 11.

We had two meetings discussing, among other things, the need to conduct future business in a new entity.

We talked about having a different ownership composition, to silence any complaints that the new entity was a successor to the old one.  They had ideas and connections for the new business in the same field.

Chapter 13

The individuals’ Chapter 13 went swimmingly.  They would surrender the underwater house and wait out the foreclosure.

The trustee had no objections and the plan was confirmed.


The levy

A month or so later, my fax machine lurches into motion.  Across the wire comes a sheriff’s levy of the old corporation’s bank account.

The levy netted almost $6000!


The client call that followed shed some light.

The client assumed that confirmation of his plan resolved, for all time and for all players, the suit on the SBA loan.

When an order for product came into the old corporation, he filled the order and used the old corporation’s credit card facility to accept payment.

And that was the money snatched by the lender’s levy.

It is a business debt.  The co debtor with my clients isn’t an individual, so the co debtor stay doesn’t apply.

The lesson

Part of the takeaway here may go back to my long-held belief that entrepreneurs are the most devoted, optimistic, and hard working sorts around.

This client just couldn’t turn down a sale.  The tools he had to fill the order just happened to belong to a corporation with an outstanding judgment.

Part of the problem is separating the business owner from the business itself.  If the owner’s problems with debt were solved, he assumed the problems of the corporation were solved.

At the end of the day, if the message to the client is important, if it’s subject to misunderstanding, if it’s complex, counterintuitive, or novel, write it down.

If instead of talk about new corporations, the “death” of the old corporation, etc., I had sent a summarizing letter, there would have been no room for the client’s assumption that the corporation’s problems were over.

Yes, I’m going to make a new plan, Stan.