What happens vendor contracts when the stores close?

[mattwatson81]

Vendors who require contracts commonly sell the contracts to banks to cash them in.

What happens when the dealers close in these scenarios?

Does the bank try to collect from the closing dealership, or do they go back to the vendor who sold them the contract?

Would Reynolds or ADP sue the dealer to collect on the contracts?

With all the dealer's closing, I would imagine this could cause some vendors to go out of business. The vendors couldn't afford to pay for all the bad contracts.

Anyone have any experience with this?

 

[Alex Snyder]

This is one of those scenarios where a bankruptcy judge would probably make a ruling as to who is responsible....assuming someone files a BK somewhere in that mix.

 

[mattwatson81]

This is one of those scenarios where a bankruptcy judge would probably make a ruling as to who is responsible....assuming someone files a BK somewhere in that mix.

Its my understanding that the vendors usually guarantee the contracts, so if the dealer goes bankrupt, the bank will go back on the vendor as the guarantor. So this could roll all the way back to the owners of the vendor who are then the guarantors and it will bankrupt them as well.

In the next 6 to 12 months I think we will see several companies go belly up over this. So many companies require contracts and then cash them to get the big up front payments for cash flow, but then they have no monthly income either.