Pub. 11 2020 Issue 1

www.wvbankers.org 20 West Virginia Banker A t Spilman Thomas & Battle, we talk with lending clients regularly about their collection options against borrowers who have defaulted in their obligations. Many are surprised to learn how varied and wide their tool- box actually is. Debts that look dead in the water may yet have air in the lungs. We thought you might find it worthwhile, as a result, to review a small primer on how to best position yourselves to widen your collection options and maximize recovery should a loan turn out poorly. The first thing we generally advise is this: make sure you col- lect the full panoply of financial statements from your bor- rower and insist on getting a loan agreement that obligates the borrower to provide this information periodically. This requirement may seem trivial at first, but it often becomes important. We all have pushed borrowers into bankruptcy by a well-timed demand letter. At Spilman, however, we also have seen how far some of those borrowers might go to conceal assets. The most important initial step, therefore, once a bankruptcy has been filed, is to compare a borrower's schedules to the financial information provided by that borrower when trying to obtain the loan. Discrepancies often arise, and, general- ly, for obvious reason. When a borrower seeks money, that borrower needs to make himself look attractive to lenders. However, when a borrower files bankruptcy, his instinct will be to minimize his responsibilities. In the instances where that instinct gets the better of your borrowers, a detailed financial history becomes all-important. From that history, a lender can provide us with the ammunition we need to challenge a borrower's discharge. While such bankruptcy-focused litigation may not always be justified — many borrowers file precisely because they have no assets left — bankruptcy litigators often have a knack for identifying the right cases to employ these measures. We have advanced these arguments in dozens of cases, and, in many, the investigation that results reveals assets that a bankruptcy trustee is more than willing to liquidate. In some cases, we have found, for example, Rolex watches, stock cer- tificates, high-priced sports memorabilia, valuable jewelry, and even heavy equipment. In other cases, we successfully used the litigation to strike valuable compromises, recovering hundreds of thousands of settlement dollars generally paid from accounts that are oth- erwise exempt from the reach of creditors. In all but a few of these cases, the financial information provided by the borrow- ers was the critical foundation for those actions. As a direct result of this fundamental diligence on the lender's part, in other words, a bankruptcy litigator can breathe life into an otherwise empty credit. In some commercial cases, lenders can avail themselves of similarly aggressive remedies before a bankruptcy is even filed. Indeed, lenders can often control the very filing itself. Again, this strategy starts by diligently seeking as much financial Think Your Debt Is Dead in the Water? Think Again! By Travis Knobbe, Spilman Thomas & Battle, PLLC