Q&A on credit
Agents periodically ask questions about credit and credit-related issues. Credit is a very complex part of our business process and there is seldom any absolute answer as each case is unique. In this four-part series, we'll answer some commonly asked questions.
Q: What if I buy a company and the prior owner owes SAIF money?
A: There is no absolute response to this question; every situation is unique. However, if the company has only had an ownership change, we need to know whether the new owners assumed the assets and liabilities (debts) of the company. That answer should be found in the parties purchase (buyer/seller) agreement. If the buyer does assume the debts of the company, then it is probable that the buyer will owe the money due SAIF.
Q: What if I filed bankruptcy and the SAIF debts were discharged?
A: There are three common chapters filed in bankruptcy: Chapter 7 (liquidation), Chapter 13 (debtor repayment plan), and Chapter 11 (business reorganization). This is a very complex legal question and there is no absolute response because of the different types of entities that SAIF insures.
But, as an example, if a customer files a Chapter 7 individual business bankruptcy and SAIF was left with an unpaid debt, we will question the creditworthiness of the business in the future. SAIF is legally barred through the automatic stay in bankruptcy, and we cannot take any further collection actions. The discharge does allow the customer (individual) the ability to obtain coverage through the State of Oregon's Assigned Risk Plan or to seek coverage from another carrier in the voluntary market. We are sometimes asked whether a voluntary payment of the discharged debt will impact the creditworthiness decision; it does.
Q: How long do we keep track of amounts owed to SAIF?
A: There is no statutory limitation, and we have very good records.
Q: What if I was in partnership with someone and the business left SAIF owing money. Do I owe all of the past debt?
A: The answer will vary based on various factors. Here is an example: If the entity is a legal partnership, then any individual involved in the partnership is also legally responsible to the payment of the debts incurred.
Q: Can deposits be used to replace those customers who have poor credit?
A: Deposits are periodically requested for customers having marginal credit and/or a weak financial condition but who show evidence of improvement. However, deposits are not always sufficient for customers who display chronic patterns of delinquency or an unbalanced financial condition. If a customer cannot pay its bills on time, it's more than a credit exposure-it often increases the hazards and reduces the loss control activities of the firm.