As close as you may monitor your debtors or borrowers, you may be surprised when you learn that a debtor or borrower is in financial distress. Some of the steps to take to prevent your borrower or debtor’s financial distress from becoming yours include:

  • Reconsidering further credit extensions.
  • Obtaining as much information as possible about the situation from your borrower, its plan to address it and the borrower’s risk of default.
  • Determining whether the distress is due to bad circumstances, bad management, or the state of the business or industry.
  • Evaluating the debtor’s chances to recover or default, and the risks/rewards or your potential actions.
  • Creating a timeline of the situation and calendar future dates of concern.
  • Crediting payments to earliest and unsecured obligations.
  • Increasing security, collateral, guaranties and other protections.
  • Obtaining debtor’s accounts receivable information and determining how to seize or use them.
  • Making sure you have all of the necessary documents and that they are in order.
  • Obtaining, reviewing and ensuring guaranties are in place.
  • Determining, understanding and reviewing your collateral, its protection and updating its valuation and location.
  • Evaluating other creditors’ positions, claims, rights and potential actions.
  • Entering into pre-negotiation or pre-workout agreements at the start of any discussions or negotiations with the debtor.
  • Extending terms or payments by a forbearance or similar agreement to delay default or foreclosure with minimal risk.
  • Evaluating and developing asset and collateral protection, seizure and disposition strategies.
  • Evaluating debtor’s options and the potential effects on you and your counter-options.
  • Retaining professionals for advice before a crisis occurs.   

The commercial law attorneys at Brooks, Tarulis & Tibble, LLC have substantial experience in counseling and representing lenders and creditors when their borrowers or debtors suffer financial distress. If you have any questions or problems, please contact us.

This Brief is designed to provide our friends and clients with information regarding the various subject matters covered, it is not designed to take place of legal, accounting, or other professional advice.  If expert assistance is required, the services of a competent professional should be sought. This memorandum may constitute advertising under the rules regulating Illinois attorneys.

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