Personal Bankruptcy Who ownes the receivable?

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gregb

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We are MI based and have a friend who runs a similar company in Arizona. They have asked us if we would be interested in purchasing their receivables thereby acting as a Factoring Company. We've never done this but we are interested because of how fiscally well run they are. My question has to do with ownership of the purchased receivables should they have to declare bankruptcy in the future (not that it is in the offing, just for our understanding).

If we have purchased their receivables, can other creditors place a lien on them or claim them as their own should the company file bankruptcy? No one could do that if we bought a computer or desk from them, but I don't know if receivables are treated differently. They currently have no business loans, only money relatives have given for start-up.

Many thanks.
 
What you are contemplating can have a few pitfalls.

You've identified a couple.

You would be better served by paying your attorney to draft a rock solid contract to protect your financial interests.

Their a a few more "gotchas", you've forgotten.

I'll give you a hint, chargebacks and those who refuse to pay.

Those can give you nightmares, plus returned checks!!


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What you are contemplating can have a few pitfalls.

Yes, you are correct and we have thought about those possibilities as well. But it sounds like you are saying that a well written agreement eliminates the possibility of a purchased receivable being taken from us in the event of bankruptcy. Is that correct?

Many thanks
 
Purchasing someone else's receivables is not a good deal unless you're getting a huge break in the price. You are taking a huge risk of never being paid on any of them at the worst. I believe though, if the person you buy them from files bankruptcy they belong to you because you paid for them. The bankruptcy court would ask the debtor to return the money that you paid him. Debt collection agencies pay about five cents on the dollar now buying people's debts. It is good advice to have an attorney write up an agreement to protect you
 
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