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Measuring credit and bankruptcy risk: is it "bad faith" for a solvent debtor to file Chapter 11?(Credit Column)

Business Credit

| November 01, 2004 | Blakeley, Scott | COPYRIGHT 2004 National Association of Credit Management. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

A fundamental responsibility for the credit executive is assessing a customer's credit risk. Based on the risk assessment, a credit professional concludes the length and amount of credit terms, if any--including whether a credit enhancement, such as a personal or corporate guarantee, letter of credit or deposit, may be required. Key to this risk assessment is the credit professional's determination of insolvency risk--and, therefore, the prospects of a customer's bankruptcy filing. Indeed, Dr.Altman's Zscore theory has been used for years as a predictor of a company's probability of filing bankruptcy. A sophisticated credit professional is well aware of the downside with ...

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