Raleigh Bankruptcy Lawyer for Factoring Loan Defaults

If you face factoring loan debt and want to file for bankruptcy, do not hesitate to contact Bradford Law Offices, PLLC for legal representation. We can determine which type of bankruptcy you should file and guide you through the entire process.

A factoring loan could benefit a business because it provides working capital for operations. When a company depends on payments from its customers to survive, applying for a factoring loan could help with short-term cash flow problems. This type of loan requires an agreement to use invoices as collateral and to pay back the loan based on the agreed-upon terms. Failing to make these payments could cause the loan to default.

As a business owner, you need immediate funds to pay business-related expenses. Receiving payment from a customer after providing goods or services could mean you wait weeks or months to turn a profit. When you need cash upfront, a factoring loan could help you afford the cost of everyday operations. Unfortunately, taking out a loan could also cause financial strain if you can’t pay what you owe.

At Bradford Law Offices, PLLC, an experienced factoring loan default lawyer in Raleigh, NC, is ready to take on your bankruptcy case. With over 25 years of experience, we have the knowledge and resources to handle the most complex bankruptcy cases. We can prepare the necessary documentation, file the petition, and work with the bankruptcy court and your creditors and lender to resolve your debt. This is not something you should have to pursue yourself.

Call the Raleigh business bankruptcy attorney of Bradford Law Offices, PLLC for a confidential consultation today at (919) 758-8879.

How a Factoring Loan Works

A factoring loan is also known as “factoring receivables.” It’s a method of funding a business by allowing the owner to use their unpaid customer invoices as collateral. The loan agreement requires the business owner to agree to pay back the money they receive. If they don’t, the lender can take ownership of those unpaid invoices.

Accounts receivable are valuable to any business that provides goods or services to customers in exchange for payment. If a business requires upfront payment or payment upon delivery of their services or products, they don’t have receivables. However, a factoring loan can be effective for companies that don’t receive compensation until after providing their services to a customer.

Factoring loans are offered by factoring companies. These loans are typically easier to get than loans from banks and other financial institutions. The business’s credit history bears minimal weight since the lender uses the owner’s invoices as collateral. A lender might approve a borrower even if their company has no credit or bad credit. However, there must be enough outstanding invoices to use as collateral for the loan.

When applying for a factoring loan, business owners can use the unpaid invoice they have and turn it into cash immediately. It’s convenient because you don’t have to wait 30 days or the required invoicing period to receive funds from the customer. You can receive upfront funds for a percentage of the invoice amount and use it to pay for costs related to your business.

Effects of a Personally Guaranteed Factoring Loan

Factoring companies often require borrowers to take out a factoring loan backed by a personal guarantee. A personal guarantee refers to a debtor taking on personal responsibility for debt a business can’t pay. If you default on a factoring loan with a personal guarantee, the lender could pursue legal action against you and use your personal assets to cover the money you owe.

Creditors have a right to pursue collection actions when borrowers don’t make the required monthly payments and the account defaults. A common method of satisfying the debt is by garnishing personal finances, such as:

  • Wages
  • Tax refunds
  • Retirement plans
  • Bank accounts
  • Social Security benefits

Sometimes, collection agencies pursue cases to seize a borrower’s assets to offset the unpaid loan. They could go after your vehicle, real estate, and other property that can compensate for the payments you haven’t made.

Types of Bankruptcy for Factoring Loan Defaults

If you miss one or two payments, you likely won’t default on the loan. Your account becomes delinquent, but you might be able to work with the lender to make your past-due payments. Most lenders provide a grace period.

A grace period is a specific number of days after the due date within which a borrower can pay without incurring late fees and other penalties. You should contact your lender immediately if you know you’re going to make your payment after the due date. Typically, they’re more willing to accept a few missed payments if a borrower seems willing to resolve the issue.

However, if it’s been months since your last payment, the loan could go into default. The lender will mark you as unable or unwilling to make the required payments for the loan you received. They could send your account to a collection agency and pursue legal action by filing a lawsuit against you.

Filing for bankruptcy might be the only option left for you to dig yourself out of the hole you’re in and pay off your debt. You can choose from three types of bankruptcy as a business owner. You and your attorney can determine whether it would be possible to file a personal bankruptcy without filing a business bankruptcy if you need to get out from under a personally guaranteed factoring loan.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy requires a business owner to liquidate their assets to pay for the money they owe a creditor. If you default on a factoring loan, you could sell the assets you have to cover your debt. However, Chapter 7 bankruptcy often leads to a business closing. Without the assets you need to operate, you may have to terminate your company.

This type of bankruptcy is common but only beneficial for owners that plan to shut down their businesses. You must pass a means test to file for Chapter 7. The means test compares your income to your total debt. If your income exceeds the debt you owe, the bankruptcy court likely won’t approve your petition. However, if you make less than your debt, you could qualify for Chapter 7.

An automatic stay goes into effect immediately upon filing a petition with the bankruptcy court. That means creditors can’t contact you about the money you owe them or pursue legal action against you. They’re not allowed to file a lawsuit, garnish your wages, repossess your property, or take other collection actions.

Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy is for individuals and those whose businesses are operated as sole proprietorships. Chapter 13 requires you to reorganize the debt you have and find a way to repay what you owe. This type of bankruptcy is also called a reorganization bankruptcy. The court will issue an automatic stay as they do in Chapter 7 bankruptcy when you file. The automatic stay prevents your creditors from coming after you for the past-due balance of the loan.

You must create a repayment plan to submit to the court with your initial petition. The repayment plan should propose how you will pay off your debt within a specified period. You can include the amount of your monthly payments and the length of the term. Chapter 13 bankruptcy terms are typically between three and five years, depending on your income compared to the state median income.

Chapter 11 Bankruptcy

Chapter 11 and Chapter 13 bankruptcy are similar, but Chapter 11 is for businesses. Filing for Chapter 11 allows you to reorganize your business’s debt with a repayment plan. Plans last between two and five years, giving you enough time to pay the lender what you owe for the defaulted loan.

An automatic stay occurs immediately after filing your petition for Chapter 11 bankruptcy, just like Chapter 7 and 13. Creditors aren’t allowed to contact you about the money you owe. That includes all forms of communication, such as phone calls, emails, and letters. The automatic stay also prohibits further collection efforts and lawsuits.

One of the major advantages of filing for Chapter 11 bankruptcy is staying in business. You can continue your normal operations if the court permits it. You don’t have to risk shutting down your company. Instead, you can continue to make money while paying your creditors so your business can thrive in the future.

Filing for Bankruptcy After Defaulting on a Factoring Loan

The steps you must follow are slightly different whether you file for a Chapter 7, 13, or 11 bankruptcy. However, most are the same. You should contact Bradford Law Offices, PLLC immediately after defaulting on your loan. We can review your case and determine whether bankruptcy is your only option for paying off your debt. We can also file the petition on your behalf and walk you through each step.

  • Pass the means test – You must pass the means test if you want to file for Chapter 7 bankruptcy.
  • Create a list of finances – Write out your financial situation, including your creditors and the amount of money you owe, assets, expenditures, liabilities, and income.
  • File for bankruptcy – You must file a bankruptcy petition with the bankruptcy court to begin the process. Include your financial statement and other documents to show you’re eligible for bankruptcy.
  • Propose a repayment plan – Draft a repayment plan to propose to the court and your creditors and lenders. This step applies only if you file for Chapter 13 or 11 bankruptcy.
  • Appoint a trustee – The court will appoint a trustee to oversee your case. If you file for Chapter 7 bankruptcy, the trustee will determine which assets they can liquidate to cover your outstanding debts.
  • Provide tax information – You must submit your most recent tax return or transcripts to the trustee. You also have to provide your tax return every year of your case.
  • Judgment – The court will review your case and determine whether they approve or reject your bankruptcy petition.

Contact Us

If you face factoring loan debt or collection actions from a lender, contact Bradford Law Offices, PLLC to determine whether you qualify for bankruptcy. We have represented business owners in Raleigh, NC, since 1996 and are ready to help you with your financial hardships. Call us at (919) 758-8879 for your confidential consultation today.