On April 20, 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The BAPCPA has an impact on all small business owners and there are things you can do to protect your business.
Pay attention to your accounts receivables, you should review all accounts and watch larger accounts regularly. If you are a very small business and losing one large account due to a bankruptcy filing, this can upset your cash flow and you want to know this is coming before it hits you! One way to do this is to be aware of the warning signs that someone may file bankruptcy.
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Watch slow payers who suddenly place large orders. When a customer is anticipating financial trouble, they may try to stock up on your goods or services. Some things you can do if this happens is ask for a portion of the payment up front or ask that their balance be paid in full before another order is processed. Watch customers who suddenly start taking deductions, some businesses do this in order to hide that they are overdue. Another warning sign is a customer that slowly starts taking longer to pay you over time, they were a good payer and then gradually become slower each month in making payment.
Some ways that the BAPCPA will help you is that you will find it easier to defend against a preference claim. The BAPCPA requires that any lawsuit to claw back a preference claim that is for less than $10,000 must be filed in the area where your business is located rather than in the city where the bankruptcy case or the customer is located. This is great news for your business; you will not have to incur any costs by traveling or hiring an attorney in another state to defend the claim.
The BAPCPA also makes it easier for a business to defend itself against a preference claim by eliminating the need to prove that the alleged preference payment was made in accord with industry standards. Now the business will only need to prove that the payments were made in the ordinary course of business between the business and the bankrupt consumer or company.
Remember that the BAPCPA also gives you and your business 45 days to send a written demand for the return of your shipped goods if the customer files bankruptcy.
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