Bankruptcy 101: Spotting the Problem
I often joke that I know enough about tax to ask questions, but not to give answers. I suspect that many non-bankruptcy attorneys feel the same about my chosen practice area. In many ways, my tongue-in-cheek approach makes good sense: I want to know enough to ask appropriate questions and spot obvious issues; but don’t want to overreach and give uninformed advice.
If only you could install a device on your office door that would set off a siren when a client walks through who needs to consult a bankruptcy or restructuring attorney (lately, the siren would wear out in a matter of months). There’s not even an exhaustive or precise list that you can keep at your desk of warning signs that a client is teetering on the brink of insolvency. Nevertheless, many years of working with distressed companies and financially challenged people have distilled a list of “red flags” that may help you spot the client for whom a bankruptcy or restructuring consultation might be helpful.
Whether the client is a flesh-and-blood person or a business entity, being involved in multiple lawsuits or disputes is a sign of financial trouble. It’s easier to spot this warning sign when the client is being chased by multiple creditors. It’s less obvious—but still a warning sign—when the client is the creditor/plaintiff or the litigation involves something other than a collection dispute. Multiple lawsuits are a “double whammy”: their mere existence suggests deeper problems, and they certainly create (or exacerbate) financial challenges through the direct and indirect costs of litigation. Continue reading →