Steve Harms - Credit and Collections

Debt collection starts with a credit application!

2013-04-17T16:17:00.000-04:00

Debt collection really begins when you first sign on your client or customer! At the beginning of the relationship, you aren't anticipating collection problems, of course, but you do know that a certain percentage of customers go bad and turn into collection problems.

So, why not protect yourself right from the beginning, starting with a credit application (you may not call it that, but you should have a form that new clients/patients/customers fill out).

What should it contain, well consider these items:

Consider accumulating the information in some way so that you have the following data on each of your clients:

1. The correct and full legal name of the applicant, the physical address (not merely a post office box), and the position of the individual who is applying (treasurer, president, etc.). To make sure that the customer clearly specifies the type of business entity, provide check-off boxes for proprietorship is also a good idea.

2. Any trade names the company operates under. For example, if the Brake Shop is a division of Win Management Corporation, the application should require that both names be listed along with the relationship between the two.

3. Names, addresses, and telephone numbers of any authorized purchasers at any branches.

4. Names, addresses, telephone numbers, and social security numbers of partners and officers.

5. Name, address, and telephone number of the bank where the company maintains its accounts.

6. Names, addresses, and telephone numbers of several trade references.

7. Type of product(s) sold.

8. Year the business was formed.

9. A statement similar to the following: “A signature on this document provides permission to pull a credit bureau report on any individual who may be liable under this agreement (such as a personal guarantor, proprietor, general partner, or similar person).”

10. Financial statements.

11. Amount of credit requested.

12. Anticipated monthly purchases.

13. A statement that the customer agrees to pay interest at a specific percentage rate, or the maximum legal rate of interest from the date of the last invoice. The interest charges are to be construed as a time-price differential and therefore not considered interest.

14. A personal guaranty, which should be obtained on all credit applications. Obviously, the signing of a personal guaranty is optional and requires a separate signature from the signature on the credit application itself. The language of the personal guaranty should be somewhat similar to the following:

Should the account become delinquent, the undersigned personally guarantees payment of the account balance to Creditor Company plus the interest and other charges referred to in this application, including reasonable attorney fees. This is a guaranty of payment. The guaranty is personal in nature and the undersigned acknowledges personal liability and consents to having a credit bureau report ordered by the creditor.

Service of Summons and Complaint to collect money

2013-04-01T13:20:00.000-04:00

A collection law suit (or any suit for that matter) is started by filing a Complaint, which lets the debtor (defendant) know--in a matter of numbered paragraphs--what you are suing for. That is, it explains the contract or account, and then the balance currently owed plus any interest/costs.

The suit also includes a cover sheet referred to as a Summons, which is form language required by the court explaining to the debtor the case number, how many days to answer the suit, the fact that this is a suit, and some other details.

BOTH the Summons and the Complaint must be served on the debtor/defendant, within the time allowed before it expires (the Summons may have the expiration date right on it).

If the defendant is an individual, as opposed to a business, personal service is required. This generally means the debtor (at least in Michigan, and the practice does vary a bit from state to state, country to country) is handed the document. However, in Michigan at least, this does not require a physical touching of the Summons and Complaint. It does require three things: Inform the debtor of the action; offer them to the debtor; and leave them in the debtor's physical control.

So, what does the process server do if the debtor takes off running into his house and slams the door (happens often, or some variation of this)? Well, the process server shouts that he is delivering a suit, he offers to hand the papers (remember...BOTH the Summons and the Complaint) to the debtor, then he leaves them right outside the door, or in the door handle, if the debtor refuses to open the door he just ran into. That is sufficient. In one case, the papers made it half way into the door as it was being slammed shut, the debtor grabbed them out of the door and threw them back at the process server. Still good service according to the Michigan Court of Appeals. Barclay v Crown Building is one good example.

Michigan also allows service on an individual by certified mail if the delivery is restricted to a specifically identified person, and if that person signs for it and the receipt is produced.

There are also a number of ways to obtain substituted service, but that requires a petition or motion be filed with the court, and court permission to so serve the papers...effective if direct service just isn't going to happen. Frequently the plaintiff who started the suit will also petition the court for an extended Summons if the process server runs out of time, usually requiring an affidavit from the process server and other address verification such as a postal trace from the Post Office.

What may seem easy, sometimes isn't. Completing good service of a law suit is a prime example of that!

FDCPA update: Mortgage foreclosure work is debt collection

2013-03-06T16:57:00.000-05:00

The United States Court of Appeals for the Sixth Circuit ruled in Glazer v Chase Home Finance (decided January 2013) that mortgage foreclosure work is debt collection under the Fair Debt Collection Practices Act. Lawyers who meet the definition of being "debt collectors" must therefore comply with the FDCPA when engaged in mortgage foreclosure as per the facts in the Glazer case.

This may come as a shock to some as this type of work is frequently not considered to be debt collection. The logic the Sixth Circuit used was that the foreclosure is basically a means to an end, and the end is to collect the amount owed on the note that accompanied the mortgage. Assuming the loan from the note secured by the property foreclosed upon was used for personal, family or household use, the logic follows that the proceeds of the foreclosure action are being used to pay a consumer debt which is the heart and sole of the FDCPA...this case, of course from the context, involved a consumer debt or, as the court called it: a home loan to a consumer.

Michigan Law App for your i-phone

2013-03-06T11:23:00.001-05:00

http://www.michigan.gov/documents/cis_ofis_ceilings_24956_7.pdf

A few comments on Michigan Collection practices

2013-03-06T11:21:00.001-05:00

Just a few quick comments on Michigan collections (I usually try to make comments in a generic fashion, applicable to most of our states) as follows:

1. MCL 600.2559 has been amended. This has to do with court officer fees for service of process and related service charges. For example, personal service of a suit is now $23.00 plus mileage; and service of a garnishment is $20.00 plus mileage. Writs to seize assets: 7% of the first $8000 and 3% of amounts over that are owed to the officer; plus posting fees and other expenses (see .2559 (1). The amended section calls for further fee increases each year in 2014 and 2015 as well. These fee charges are all reasonable and necessary, but they are something attorneys working in enforcement of judgments should be aware of.

2. Cool apps are available. Check out MICHIGAN COURTS in the App Store for I-phones, I-pads and I Pod touch for powerful tools including State and Federal court rules, access to PACER and the like. Try:

http://www.michigan.gov/documents/cis_ofis_ceilings_24956_7.pdf

FDCPA defendant may recover costs against an unsuccessful plaintiff

2013-03-01T15:12:00.001-05:00

Good news for collectors who are sued unsuccessfully by a plaintiff for violating the Fair Debt Collection Practices Act (FDCPA): the United States Supreme Court just ruled that the defendant in the case may recover costs against the unsuccessful plaintiff.

The plaintiff in the case before the Supreme Court argued that costs could only be assessed against a plaintiff if the action was brought in "bad faith" as per Section 1692 k (a)(3) of the FDCPA.

The Supreme Court said the bad faith requirement does NOT prevent a court from awarding costs against a plaintiff who brings a FDCPA claim, even if in good faith, if the suit is unsuccessful. A portion of the rather long opinion is attached here:

Petitioner Marx filed suit, alleging that General Revenue Corporation (GRC) violated the Fair Debt Collection Practices Act (FDCPA) by harassing and falsely threatening her in order to collect on a debt.The District Court ruled against Marx and awarded GRC costs pursuant to Federal Rule of Civil Procedure (FRCP) 54(d)(1), which gives district courts discretion to award costs to prevailing defendants“[u]nless a federal statute . . . provides otherwise.” Marx sought to vacate the award, arguing that the court’s discretion under Rule54(d)(1) was displaced by 15 U. S. C. §1692k(a)(3), which provides, in pertinent part, that “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.” The District Court rejected Marx’s argument. The Tenth Circuit affirmed, in pertinent part, agreeing that costs are allowed under the Rule and concluding that nothing in the statute’s text, history, or purpose indicates that it was meant to displace the Rule.
Held: Section §1692k(a)(3) is not contrary to, and, thus, does not displace a district court’s discretion to award costs under, Rule 54(d)(1).Pp. 4–16.

(a) Rule 54(d)(1) gives courts discretion to award costs to prevailing parties, but this discretion can be displaced by a federal statute or FRCP that “provides otherwise,” i.e., is “contrary” to Rule 54(d)(1).Contrary to the argument of Marx and the United States, as amicus, language of the original 1937 version of the Rule does not suggest that any “express provision” for costs should displace Rule 54(d
....Congress did not intend §1692k(a)(3) to foreclose courts from awarding costs under the Rule.

Collection Seminar: Thursday June 6, 2013

2013-02-26T08:46:00.000-05:00

UPCOMING COLLECTION SEMINAR
will be recorded and available by CD

We are pleased to announce a full day of discussion on collecting money from your delinquent accounts.

This seminar is geared for attorneys and is based upon written materials submitted by the speakers and my book, Handling the Collection Case in Michigan.

Handling the Collection Case in Michigan, a detailed analysis of a collection case.

The seminar, organized by the Michigan Institute for Continuing Legal Education, is a detailed look at many of the key collection topics, as per the day's agenda, printed below, and will be held at the beautiful INN AT ST. JOHN'S in Plymouth, MI on Thursday, June 6, 2013 (and available on CD thereafter).

Topics for the day:

Creditors’ Rights 2013

(subject to any changes in topics or speakers)

Thursday, June 6, 2013

The Inn at St. John’s, Plymouth

Course Schedule

Moderator

Steven A. Harms

Muller Muller Richmond Harms & Myers PC

Birmingham

Morning Session:

9:00 a.m. to 12:00 p.m.

The collection case from beginning to end, a complete discussion on the topics involved from negotiation before suit, right up through post judgment collection.

Steven A. Harms and other speakers
Afternoon Session:

1:30 p.m. – 5:30 p.m.

1:30 p.m. – 2:00 p.m. How to Use a Garnishment Effectively

• Practical tips for using garnishments effectively

• The new 180-day rule

• Using garnishment in insurance claims (e.g. fire)

• Thinking beyond banks and wages- garnishing accounts receivable, lottery winnings, state of Michigan income tax refunds, insurance proceeds, rent income (rent payments), and more

• Exceptions to garnishments: pension plans, child support, 401k, IRAs, etc.

• Priority writs that affect your garnishment

Daniel E. Best

Weltman Weinberg & Reis Co LPA

Troy

2:00 p.m. – 3:00 p.m. The Nuts and Bolts of Asset Seizures (Execution Writs)

• Process overview- how to get an order to seize property

• Elements of an execution writ (and what forms to use)

• Teamwork: court officer and attorney collaboration in asset seizures

• The attorney’s role in information gathering for effective asset seizures

• Court officer fees

Steven A. Harms

Muller Muller Richmond Harms & Myers PC

Birmingham

Jeff Kirkpatrick

Court Services Agency

Jackson

3:00 p.m. – 3:15 p.m. Questions and Answers

3:15 p.m. – 3:30 p.m. Networking Break

3:30 p.m. – 4:15 p.m. Tips, Tricks, Traps and Trouble: Collecting Money and Avoiding Consumer Claims

• Caselaw update: Fair Debt Collection Practices Act, Michigan Collection Practices Act, Fair Credit Reporting, and more

• Latest filing trends and fact patterns

• Best practices for collection law firms

Charity A. Olson

Olson Law Group

Ann Arbor

4:15 p.m. – 4:45 p.m. A Court’s Perspective on Attorney Fees and Costs

• New cases on attorney fees and costs

• Attorney fees as part of contract

• What "reasonable attorney fees" means

• Is a contingency fee a "reasonable attorney fee"?

• Chargeable costs

Hon. Dennis C. Drury

52nd District Court

Troy

4:45 p.m. – 5:15 p.m. Skip Tracing: Uncovering Debtors and Hidden Assets

 Using subpoenas, credit reports, Internet resources, and public records together to locate assets

 Skip tracing practice tips and advice

 A practical approach to working with debtors

 Commercial versus consumer skip tracing; constraints of FDCPA

 Real property skip tracing

 Skip tracing check sheet and its importance when conducting a creditor’s examination

5:15 p.m. – 5:30 p.m. Questions and Answers

Adjourn

Being a witness at a collection trial: Common concerns

2013-02-22T09:34:00.000-05:00

Rarely do collection cases go to trial. That's a good thing because providing a witness, or being a witness is an inconvenience at best, and a real strain at worst (where the case is heavily disputed). This discussion covers some of the common questions asked by people who may have to testify at a collection trial.

How do I prepare to be a witness in a collection trial? Preparation of a witness doesn’t have to be complicated. Let your witness know the facts and your theory of the case, and what you hope to prove in court. You should also walk the witness through what happens in court — that she or he be called to the witness stand, sworn in, questioned by your lawyer, then cross-examined by the other side.

Sometimes there will be redirect, asking some follow-up questions based on the cross-examination, and then the other side will re-cross. Then, in all likelihood, the witness will be excused with the instruction not to talk to other witnesses about the case before the litigation concludes.

The witness should always speak freely, based on her own knowledge of the facts and circumstances, without a great deal of influence from anyone else. You should never give your witness a prepared speech or words to say. Most lawyers know funny stories about witnesses who were caught reciting memorized statements in court, or reading speeches they concealed in their clothing. But those stories aren’t funny at all to the party who lost the case when it became clear to the jury that the witness was reading or reciting somebody else’s words. It’s even OK if they have to answer: “I don’t know” to some questions...that’s normal.

REMEMBER: Witnesses must be able to testify from their own recollection of what happened. That’s true even if the witness isn’t going to say exactly what you want to hear.

What if no one at our company has any personal knowledge of the collection issue? When no one has personal knowledge, do the best you can to create a solid paper trail: a clear set of records and documents for your witness, so it appears that your company keeps clear and accurate records of transactions and events. With good preparation, a disorganized company can come across as highly organized. With poor preparation, even a scrupulous company can look like it doesn’t even know how to use a paper clip.

Sometimes you have to concede certain factual claims or issues because you don’t have a witness to testify in response to the defendant’s claims. If you discover that you have to concede is-sues that are very important to your case, it’s time to negotiate and to settle your case for the best amount you can get. The facts and circumstances are what they are, and it’s not always easy to make lemons into lemonade.

Do we always have to physically appear at the trial? Sometimes when a witness can’t be physically present for trial, you can make arrangements to take testimony in advance, or to have him testify electronically. Under exceptional circumstances, it may be possible for a witness to testify at a hearing by remote communication such as by telephone or through videoconferencing.

Courts favor testimony that’s given live, in court. Other methods of presenting testimony are the exceptions to the standard rules, and may be available under only limited circumstances. Start with the expectation that the judge will insist that the witness appear in person. Don’t anticipate that you can present testimony by any other means unless you first confirm it with the court

Can my deposition be used? Sometimes a deposition or other form of sworn testimony can be preserved so that a witness doesn’t have to be physically in the courtroom or dispute resolution hearing to be heard. Generally speaking, you must make arrangements beforehand, based on the unavailability of the witness for a hearing, and give all parties the opportunity to participate in the examination and cross-examination of the witness.

A personal comment.... (with apologies to readers who expect substance, not fluff, so, after this, I'm back to substance)

2013-02-20T12:43:00.002-05:00

Today I break my cardinal rule of making this blog all about the facts and not going on and on about personal stuff. I was overwhelmed with an award I received in Miami last month at the International Association of Commercial Collectors (IACC), and here is the write up in Scope, the official newsletter of IACC (Feb 2013, copyright held by IACC).

The IACC Leadership and Distinguished Service Award recognizes an IACC member individual who has given his or her time and energy to better the IACC and who has conducted his or her professional and personal life for the betterment of the commercial collection industry. This year we recognize and honor an individual who exemplifies these qualities. Since becoming a member in 1988, Steve Harms, has been very active from the start.

Over the past 25 years Harms has been instrumental in shaping, developing and perfecting the IACC’s training and educational programs. He has conducted numerous face-to-face seminars, presented many sessions at annual meetings and has taught well over a dozen teleseminars; and that is only for IACC. Harms also shares his knowledge by teaching as an adjunct professor at a top business college in Michigan and speaking for many associations across the country. And, if that’s not enough, he has also authored or co-authored (or contributing author) no less than eight books on credit/collections/business.

Beyond his dedication to improving IACC’s educational offerings, Harms has also given his time by serving on the board of directors of IACC for three terms, he has served on many committees over the years and continues to serve today.

Using the appropriate legal theories

2013-02-07T08:20:00.003-05:00

After you figure out who you’re going to sue, you need to spend a bit of time thinking about your causes of action — the legal theories you’re going to present in your complaint for why the debtor owes you money.

Contract theories

The most common legal theories are based on principles of contract. Possible causes of action include:

* Breach of contract: That is, you had a contract with the defendant, you fulfilled your side, she didn’t fulfill her obligations, and she owes you money.

* Complaint on an account stated: In many states, you can file a special cause of action based on your final statement of account. You support your complaint with a copy of the statement of account and an affidavit attesting that the statement of account is accurate. This shifts the burden of proof to the defendant, and if the defendant doesn’t file a proper response disputing the debt, the court will issue a judgment in your favor.

Fraud

In simple terms, a claim of fraud alleges that the debtor made a false claim or representation to you, knowing that their claim was false and that you were acting in reliance upon that statement, and that as a result of your reliance you suffered an injury. Fraud involves more than a claim that the debtor said he was going to pay you but didn’t.

For example, fraud may be alleged where a customer presents you with false bank statements, or a fraudulent letter of credit, making you believe that the customer is financially strong when in fact he has no resources and no intention of paying you, and he gets you to ship goods to him based on his false representations.

Suing owners of corporations

Normally, the owners of an incorporated business are shielded from personal liability for corporate debts. However, corporate officers may be held personally liable to pay you under a number of different theories( but never on a contingency fee, well, almost never), including:

* Undercapitalization: Not enough money was invested at the start to adequately finance the business, or the principals withdrew too much money from the business, resulting in its financial problems.

* Commingling personal and corporate assets: No clear line exists between the personal assets of the owner and the assets of the business. For example, funds belonging to the business may be instead used for personal purposes, such as paying the college tuition of the owner’s children. Or the owner of a small corporation treats the corporate bank account as if it’s his private checking account, keeping his own money in the account and using it to pay household bills.

* Piercing the corporate veil: Seeking to hold corporate officers personally liable as the result of extraordinary misconduct on the part of the officers. For example, you may allege:

* The corporate entity is a mere instrumentality of another entity or individual. The corporation isn’t treated as a separate entity, following the required protocols (holding board meetings, keeping corporate records, and so on), but is instead an alter ego for its principals, who want to avoid personal responsibility for their questionable conduct.

* The corporate entity was used to commit a fraud or a wrong. The primary purpose for the corporation’s creation was to further a wrongful act.

* The corporate entity created an unjust loss or injury to your company. Courts have had difficulty articulating the circumstances under which unjust or inequitable conduct can justify piercing the corporate veil. Suffice it to say, it’s extremely rare.

Most states don’t have a clear standard governing when a corporate entity may be disregarded and the officers sued personally. However, no state makes it easy to pierce the corporate veil.

It’s rare to be able to successfully allege undercapitalization or commingling, as in most cases you don’t have access to any information that would reveal undercapitalization or commingling of funds. Similarly, it’s very unusual to successfully pierce the corporate veil.

Foreclosure and recovery of property

If you’re foreclosing on a lien or mortgage, you may be able to choose between judicial and nonjudicial foreclosure. If your state’s laws require judicial foreclosure, or you believe you may benefit from judicial foreclosure, you file a foreclosure lawsuit. The procedures for filing a foreclosure suit are different in each state. Foreclosure lawsuits can be tricky, so consider getting help from a lawyer.

You may initiate litigation to recover items of property that are in the possession of the debtor. For example, if an invoice wasn’t paid, you may want to recover goods you have shipped to the debtor. Actions to recover physical property are sometimes called replevin actions when based on statute, or detinue actions when based on common law principles.

Bad check actions

If your debtor has paid you with a bad check, you probably have a statutory claim for a civil penalty in addition to recovering the face value of the check. Some states also permit you to recover attorney fees.

A detailed discussion of the collection law suit is found here.

2013-01-04T13:35:00.001-05:00

http://www.amazon.com/Credit-Collections-Dummies-Lifestyles-Paperback/dp/0470465956

Collecting your money through suit: Filing the collection law suit

2013-01-04T13:32:00.000-05:00

In December, I posted a blog discussing the considerations used for filing a collection suit. Now, I'm continuing that discussion with an outline of the progress of a collection law suit.

A typical lawsuit progresses as follows:

1. You select a court to file your lawsuit in. Select a court (several factors to consider, such as “home court advantage” and the FDCPA, plus statutory requirements such as real estate lien cases)

2. You file legal pleadings, written documents formally stating a legal claim. Specifically, you file a summons and a complaint (along with the required filing fee) with the civil clerk.

* The summons: The summons notifies the defendant that the you’re suing him and provides basic information such as the court location, court telephone, case number, and your name and phone number. It also states how much time the defendant has to file an answer to your complaint (typically 28 days).

* The complaint: The complaint informs the defendant of your cause of action (your specific factual and legal claims) and concludes with a request for money damages. A collection complaint is often only three or four paragraphs long, particularly when a creditor is suing on an unpaid account.

* The exhibits: You also attach relevant exhibits to the complaint, such as the invoices and a statement showing the outstanding balance, delivery receipts showing that the goods were delivered, and the credit application and any contract involved, especially if either one of those documents establishes your right to collect interest or the costs of collection.

3. The civil clerk of the court issues the summons, filling in a case number and a few other details, and either returns it to you to serve on the defendant or turns it over to its own process server (a person authorized to serve court papers) to be formally served.

4. After the defendant has been served, one of two things happens.

* The defendant files an answer, placing the case at issue. The clerk then sets the matter for a hearing or

* The defendant doesn’t file an answer (or other acceptable response) with the court, and you ask the court to enter a default judgment in your favor.

5. After the period for filing an appeal (usually 28 days) expires, the judgment becomes final, and you may proceed with postjudgment collections.

If a defendant answers your complaint but is not amenable to settlement, you’ll have a trial followed by an entry of a judgment by the court. If you win, your judgment will describe the specific amount of money the defendant owes you and establish your legal right to collect that money from him.

Furthermore, your judgment accrues interest at a rate defined by the laws of your state. Translation: The longer the defendant takes to pay, the more money you get. You have the opportunity to enforce the judgment.

At any point during the proceeding, you and the defendant can settle the case. You may agree to dismiss the case for a partial payment of what you believe the defendant owes, a full lump-sum payment, or an installment plan for payment. All courts encourage the parties to a lawsuit to resolve their differences without going to trial.

Include all your theories of recovery, and parties who are liable. The obvious: personal guarantors, general partners, sole proprietor…however, there are many more!

When you file a lawsuit, include as defendants all people who may be responsible for paying the debt. Review your credit file for helpful information. It’s best to add all defendants at the beginning of a lawsuit, right when things get going, so that you can get them all served with copies of the lawsuit and reduce the chances for the litigation to drag out.

Collections: reviewing your case for a possible law suit!

2012-12-21T08:37:00.000-05:00

I. Do you have a good case?

Every story has two sides. If you’re a parent, you know that to be a fact. Before you punish Johnny for hitting Susie, you have to hear from both kids so you can figure out exactly what happened. Even that may not be enough, but you’ll be closer to the truth than if you hear only one side of the story. Lawsuits (as well as alternative dispute resolution) work the same way — you state your side, the debtor states his side, and a judge or jury (or mediator or arbitrator) tries to sort out what really happened. So find out your debtor’s interpretation of the facts, and figure out your debtor’s theories as to why you shouldn’t be paid.

You also need to assess your own case and determine whether it’s strong enough to win in either ADR or in court (we discuss both options in this chapter). Your evaluation of the evidence should include

* A review of any letters or other written communications exchanged with the debtor, and your notes on any comments made orally. (It’s very important to keep notes of all discussions with a debtor.)

* An analysis of the debtor’s likely claims and defenses. Determine whether you have sufficient information, evidence, and documentation to counter what you expect the debtor to say. Don’t expect the judge or jury to simply take your word for what happened — you should be able to produce documents to support your position.

* An objective evaluation of the data before you. It’s easy to take the position that you’re right, and therefore, you should win and the debtor should lose. Instead, step back and ask yourself whether the debtor may score some points with the judge or mediator based on your knowledge of or instinct about what the debtor’s going to say.

Sometimes it’s impossible to predict whether you’ll win a lawsuit. When you’re getting started, you’re more likely to choose to hire a lawyer or get a “reality check” from collections professionals you work with. Over time and with experience, your forecasting skills will sharpen, and you’ll become very good at assessing whether a particular case is strong enough to win. Just look at how accurate weather forecasting is, now that the weather folks have experience . . . okay, bad example. Fortunately, collections cases are less susceptible to chaos theory than weather predictions.

What if you don’t think you can win your lawsuit? You find problems with your documentation, you have a key witness quit and either become unavailable or too risky – such as an ex-employee with a grudge – or the debtor has strong defenses to your claims? Then you need to consider your options other than litigation, such as settling the case for whatever you can convince the debtor to pay, or writing off the debt. Generally speaking, it’s not a good plan to try to win in court despite your awareness of serious problems with your case.

II. Does the likely outcome justify the costs of suit?

Even if your claim is being handled on a contingency fee, there are costs to consider, the costs of suit, rarely less than $300, and the potential costs of providing documents along with any travel for hearings, trial etc. If, for example, your debtor has a disconnected phone, mail is returned and the like, well, minimal, if any, costs may be justified!

* Do you have the documents/witnesses? Invoices, delivery receipts, credit app (the agreement), ledger, etc….are they available? Is the witness who dealt with the debtor available or do you just have a “keeper of the records” person with no real knowledge.

* Statute of Limitations and other concerns. Sale of goods, 4 years, other contracts may be 6 years or longer, but look at the documents, find the date of last payment.

* Some states are more expensive than others! Let’s say you have two accounts you plan on suing, only 20 miles apart, but in two different states..the costs for a suit, judgment and a writ of garnishment in one may be over $750.00 while the other state may only charge $250.00! I’m thinking of Pennsylvania and Ohio, but I’m sure there are many more examples. However, investing $500 or even $750 to collect a large account is almost always worth it if the debtor is reasonably believed to be collectable!!

Collections in Michigan: Garnishment rules changed to allow wage garnishments to go 182 days!!

2012-10-08T07:41:00.003-04:00

Good news for collection attorneys and others dealing with various forms of "wage" garnishments (periodic garnishments of income). 2012 PA 304 was passed effective Sept. 25, 2012, changing periodic garnishments from 91 days to 182 days.

The length garnishments last varies widely from state to state, and there are always political "pressures" to make changes. Some states have banned garnishments on head of households altogether!

Well, in Michigan, we allow wage garnishments, and for years they were good for 91 days (that is, they had to be renewed every 3 months)....well, that has now been extended to 6 months, effective immediately.

Collecting Money: How much time do we have (statute of limitations)?

2012-07-19T08:44:00.000-04:00

Most of us are aware that there are limitations on actions, that is, we only have so much time to file a law suit to enforce collection.

For the sale or leasing of goods, from staples to cars, the Uniform Commercial Code (UCC) applies in all states. It imposes a four year statute of limitations.

However, on other contracts, we generally have a longer period of time (in Michigan, for example, we have six years) to bring suit after default or last payment made (that's a discussion in an of itself, for another time).

Well, a Michigan Court has just ruled that a credit card (this is a contract which should fall under the longer statute of limitations because it is NOT the sale or leasing of goods, per the UCC) does fall within the four year statute if it was USED to buy goods....this is not good logic...the court is wrong...none the less, that is the ruling!

The court totally overlooked the fact that a credit card is essentially a banking relationship...one of borrowing money. Regardless of what I use my card for, I'm borrowing money from the credit card company...that's the way I see it.

Anyway, the Michigan court noted that Indiana and other states have adopted the concept that a credit card use to buy goods is governed by the four year statute under the UCC...so here I am...warning you to make a mental note that you may only have four years to bring an action on a credit card debt. I may not agree with it, but I don't control the courts!

Does "debt collector" include a creditor/loan servicer?

2012-06-03T09:05:00.001-04:00

An account was assigned for collection to a loan servicing company. The loan was not in default at the time of the assignment. So, the servicing company can't be a "debt collector" under the Fair Debt Collection Practices Act, right?

Well, if the non-debt originating loan company takes the assignment believing the debt was actually delinquent, and starts an aggressive collection campaign against the debtor and her family, then the assignment is deemed to be that of a delinquent debt, and the loan servicing company is deemed to be a debt collector. Also, since the FDCPA protects any person, the non-debtor family member (her husband) also gets to sue as a plaintiff!

Bridge v Ocwen was just heard in the 6th Circuit Court of Appeals in Ohio, so has national implications as a federal case.

Contracts: signatures may be done by computer, email, fax!

2012-04-23T16:54:00.000-04:00

Sometimes there is a challenge from a customer who refuses to pay a bill that: "You can't collect from me because I didn't properly sign a contract with you." Well, first of all, not all contracts need to be in writing in the first place (millions of dollars of goods are purchased daily on phone call agreements). Further, goods received by a customer, which aren't returned timely are ACCEPTED and the deal has been RATIFIED...which makes for a valid deal even without a contract. On the other hand, perhaps you DO have a valid signed contract: only the customer (debtor) signed electronically!

Electronic signatures, such as confirming emails or click-ons ("I agree") or similar buttons are valid means of entering into contracts which are binding, and which will be upheld in court.

There are two main laws dealing with the topic of electronic signatures, the Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA).

E-Sign is a federal act enacted 10/1/2000 providing that no contract be “denied legal” effect solely because it is in electronic form. In other words, an electronic signature may be just as enforceable as a written one.

UETA is a state act enacted in 1999 to create uniformity in state laws pertaining to e-commerce. This act is very similar to E-SIGN in that it establishes that “records, signatures, and contracts may not be denied enforceability solely due to their electronic form.”

The state law, UETA, is a uniform act, which, like the UCC, has been adopted in some form by most states…Michigan has adopted it.

Now, what is important is that both sides agree to the use of electronic signatures and that there be a way to prove the customer/debtor did consent….for example, client should require debtor to email back, or have a click on button “I agree” or something similar. IF information is merely AVAILABLE online, that won’t be adequate.

Most states also have restrictions on what contracts can be made or cancelled with e-sign…for example, insurance companies still have to mail out written cancellations of policies even if the contracts to purchase insurance were done by e-sign.

There are cases at the appeal level which have upheld the validity of e-sign by email and click on agreements.

Then, there is the practical, as opposed to legal, factor: some judges aren’t in the 20th Century!

COLLECTING FROM BUSINESS ENTITIES: When is the owner personally liable for the debt?

2012-03-06T08:01:00.000-05:00

Collection of commercial account can be tricky from the standpoint of WHO you can actually demand the money FROM…in other words, when is there PERSONAL LIABILITY FOR THE ACCOUNT.

A proprietorship is a simple form of business involving a single owner who has the business in his own name. An example is John Jones dba Jones Bike Shop. This form of business may not even be registered. Occasionally, you find the business is registered under the assumed name or fictitious name county filings in the county where the business is operated.

A partnership is a little bit more complicated but similar to a proprietorship with more people. The general partners are the owners, and, like a proprietorship, they are personally responsible for all debts incurred by the business. An example would be John Smith and Mary Smith dba Smith’s Bike Shop. A fictitious or assumed name certificate may be filed in the county. A certificate of a partnership may be filed in the county or even with the state in some states. Some states have lookup documents where you can lookup to see if a business is registered as a partnership.

A partnership can get a little bit more technical if you get into the concept of limited partnership. In this instance, there are two different kinds of partners: a general partner and a limited partner. The general partner is personally responsible for all debts and the limited partner is like a shareholder of a corporation; that person has invested money and is only liable to creditors for the amount of his investment. For example, if the limited partner invests $10,000.00 and that $10,000.00 is fully paid in, then the limited partner is not exposed for any other liability. Limited partners generally are not active in the business and are really prevented from being active in the business. The general partners are generally active in the business, responsible for day to day activities, and, again, are liable for contracts the business enters into. There must be at least one general partner and one limited partner. Partnerships can even consist of corporations, which form partnerships. Sometimes these are also formed as joint ventures. A joint venture is different because it is formed for just one limited purpose such as to run an event for a weekend or something like that.

Corporations of course are very familiar to all of us. There are formalities. They must be filed and they must be maintained. If they are not maintained, corporations are dissolved automatically by the state they are in generally after three years.

The whole point of a corporation is that there is no personal liability for their owners. However, there can be personal liability if they sign personal guarantees or if there is a theory for piercing the corporate veil.

Corporations are on file with the state. They can generally be confirmed through a telephone number or on line access.

Each state has its own corporation law, partnership law but most states have adopted the Uniform Partnership Act so partnership enforcement is consistent and also most states, or at least 75% of the states, have adopted the Model Business Corporation Law which is also uniform.

Like the Uniform Commercial Code, these are all laws adopted in individual states. None of these are federal laws. However, there is remarkable uniformity throughout the country.

Question: Who is liable with regard to these legal entities and who can we cask to pay us when we make our demand?

Answer: This is a very good question and probably should be broken down as follows: those legal entities which we call and can remind the owners that they are personally obligated and those business debtors we call knowing that there is only business liability.

First, the entities with personal liability:

1. Proprietorship. If the business is John Jones dba Jones Bike Shop or anything similar, John Jones is personally liable. The bike shop could have folded but Jones’ personal assets are still exposed to you, the creditor. You can threaten to sue him personally. You can threaten to sue him and take his personal assets as part of that process (this should all be done professionally as you know). There is full personal liability and a sole proprietor cannot escape that.

2. General Partners of a Partnership are personally liable the same way sold proprietors are. You can remind them when you make your collection calls that they will be held personally liable for contracts and that their personal assets are “on he line”. Of course, this is not true with regard to limited partners.

3. Corporations involved no personal liability with a few exceptions: check your client’s documents carefully to see if there are any personal guarantees which would make those individuals (generally top officers) personally liable for business debts. The guarantees may even contain some restrictive provisions such as a limitation in dollar amount or a limitation of time.

There are a few other ways that corporate officers or directors could be personally liable for debts but when making demand over the phone, I would not go into it. In other words, you may be considering a theory of piercing the corporation veil because there was some fraud or concealment or whatever. After checking with an attorney experienced in that area, you could probably make such a demand but otherwise, I would stay away from it.

A corporation, which has expired, and the debt was incurred after the expiration date is a potential basis for personal liability. I use the word “potential” because the corporation can re-file itself and erase the personal liability. That can happen any time up until the entry of judgment in most states. Let'’ take an example so that this concept is clear; Fred Jones owns Jones Corporation. He files the corporation but fails to file annual reports. After three years, Jones Corporation is dissolved. The disillusion (that is what it is called) occurs for purposes of this example on August 1, 2001. On September 1, 2001, he buys $10,000.00 worth of product from your client. At the time the produce is purchased, the corporation is technically defunct, dissolved, does not exist legally. He can use some theory such as “de facto” or “de jure” if he knows the lingo but you can also remind him that your client is prepared to litigate on the basis of personal liability since the corporation was dissolved at the time the purchases were made. There was no corporate entity at that time.

Likewise, some debt can be incurred prior to the corporation being formed. This is called “promoter liability”. If for example, John Jones owned a Jones Corporation but he incurred some debt from your client prior to the corporation actually being formed with the state (it is very easy to determine the incorporation date by calling the state) then he is personally liable to you as a promoter of the corporation.

Collection Scam Artists...they're even contacting consumers on fake debts!

2012-03-05T09:07:00.000-05:00

The Federal Trade Commission governs much of our industry, and handles numerous complaints from consumers on such matters as Fair Debt Collection Practices Act violations. The newest scam appears to be the hiring or creation of call centers made up of fake debt collectors to make strong-arm collection calls on fake debts!

Yes, scam artists have figured out that if you harass someone enough, they might just pay a debt that doesn't even exist...just to get the "debt collector" off their back! The FTC offices are referring to this scam as phantom debt.

A number of consumers have already admitted to paying hundreds of dollars by check and even credit cards, to get rid of "collectors." These consumers paid these fake debts as they were worried the fake collectors really would follow up with threats to have them fired, garnished, arrested at work, or, they thought they may really owe the money from some pay check advance or similar situation they simply forgot about.

For those of us who are involved in legitimate collections, knowing that intentional violators of the FDCPA exist is bad enough. Now we find that scam artists have invaded our industry and are making collection demands on debts that don't exist to get money from innocent people.

According to a recent article in the Detroit Free Press (freepress.com), some callers are demanding as much as $2,000 from consumers, under threats of wage garnishments, having the consumer arrested at work and the like. The scam artists seem to have quite a bit of information on the people they are calling. Since one crooked debt collection firm took in $5 million, the scam obviously works.

I firmly believe anyone reading this blog is an honest debt collector just trying to collect on legit debts using legal means....however, we can't put our collective heads in the sand...we have to be aware of these illegal practices.

Collections of student loans: are we facing a debt bomb?

2012-02-09T08:18:00.000-05:00

Student loans amount to about $1 trillion in outstanding debt, and many students are finding they just can't afford to pay them off! A number of sources (just Google "student loan debt bomb") are reporting the default rate on student loans could be the next debt bomb, like mortgage defaults and foreclosures.

Although collectors have take solice in the fact that most student loans are not discharged in bankruptcy of the student, there is a hardship exception, which may be used. Will bankruptcies with hardhip applications be the norm rather than the occasional exception to the rule? That is the talk on the street.

There is talk of federal legislation to allow for a discharge of student loan debt following a five year "good faith" window of opportunity, but that is not likely to pass right now. (H.R. 2028 and S. 1102 are proposed changes to private loan discharges, but neither restore discharge for federal student loans).

Collecting Accounts Beyond the Statute of Limitations

2012-01-31T08:14:00.000-05:00

A cautionary note: I suggest you Google or otherwise read about the $2.5 million dollar fine imposed on a Michigan debt buyer for failing to tell consumers that on debt past the statute of limitations, the debt is revived by a payment.

Clearly, payment on debts beyond the statute of limitations can be demanded as the money is still due. However, these debts can't be sued on, because each state imposes a statute of limitations, which is simply a "drop dead date" for bringing a collection suit in the courts.

Apparently, and the upshot as of this minute is a bit unclear, collectors CAN demand payment on old debt as long as the consumer paying it is told the debt is beyond the statute of limitations in that state, that a payment will revive that statute, and suit can be brought if a payment is made. Also, some of the articles today on the Internet suggest the debt collector may be limited in reporting the debt to credit reporting agencies.

If you collect past due accounts, which are beyond the statute of limitations, check this out and comply with any new/existing requirements to avoid being charged by the Federal Trade Commission.

By the way, the Michigan debt buyer settled without any admissions of the FTC claims according to articles on the topic....the point of this blog is NOT to toss any stones at this business (which is why I didn't even name the company mentioned in the article), but rather to educate readers of the potential issue the FTC may raise with collections on older accounts, typically consumer accounts.

Collections: MERS update

2012-01-30T16:27:00.000-05:00

On Tuesday, May 3rd of 2011 I posted a blog discussion on MERS, the mortgagee created to quickly file mortgages, but not the holder of the note (the debt). The discussion was to the effect that the Court of Appeals held the mortgage foreclosures by advertisement had to stop and that there were serious issues to be dealt with because the note holder and mortgage holder were different entities.

Well, getting right to the bottom line, and not getting caught up in the many technicalities on this whole issue, the Michigan Supreme Court has now ruled that the Court of Appeals was wrong. So, we are back to business as usual here in Michigan in terms of foreclosures, and there apparently is no legal problem with the MERS filing system and the mortgage foreclosures....I suppose good news for the banks and perhaps bad news for the home owners.

If you are a legal beagle and want to read more about the case, check out or Google Saurman at 805 NW2nd (that's Northwestern Reporter, 2nd) at page 183.

Collecting Money: Avoiding Stall Tactics

2012-01-24T11:52:00.000-05:00

Debtors (people or companies which owe money to creditors) love to stall payment, anyway they can! The more they stall, the longer they can hold on to their money, or, the longer they can use YOUR money to pay for other things.

One strategy to avoid the stall tactic is to try to find out what portion of the debt is allegedly disputed (the stall tactic). Then, get the debtor to pay the undisputed portion of the claim. Your logic to the debtor is simple: “show your good faith to our client by paying the undisputed portion of this account, that way our client will take your claims/objections more seriously and we can actually resolve them”.

Keep in mind that the debtor wants to make the matter as complicated as possible. This is an excellent stall tactic used to confuse many debt collectors. If the debtor can convince the collector that this is a complicated, fuzzy, hugely disputed matter, the creditor is more likely to let the debtor get away with a stall. The collector might even let the debtor go an additional 30 or 45 days after the last communication, not wanting to deal with these stalling tactics!

Again, make the file as clear as possible by defining the undisputed portion, and then focusing in on the actual issues as to the disputed portion of the claim including information such as the invoice numbers, or the description of the goods which are disputed.

Once you know exactly what is in dispute, obtain the necessary documents to "prove" your case (invoices and the like).

Documents will include invoices and delivery receipts but also call notes made by in-house credit people, scraps of paper written in handwriting, e-mails, faxes, etc. Obviously, if you can find a piece of paper where the debtor admitted that they were going to pay all or even a portion of the account, you have struck gold! The best clients for collection attorneys like me are those clients who keep things in writing, particularly when an account is disputed.

A good credit manager, even on a disputed account, would write something to the debtor like “per our conversation today, we agreed to work on invoice #123 for $1,000.00 but you agreed, in the meanwhile, to pay off the remaining balance of $1,500.00 on the other invoices which are not disputed”. Obviously, a document like that is a piece of gold to you and to your attorney if the case actually goes on to be sued. Any written admission of the debt is a very, very substantial piece of evidence in your favor!!

If the case does go on to suit, please note that all documents should be sent onto the attorney particularly “key” documents such as personal guarantees, contracts, credit applications, invoices, delivery receipts and related documents. Yes, even a credit application is extremely important. It can tell you and the attorney where the debtor banks and other very helpful information. Sometimes there is a question that you might not even anticipate such as what the legal composition of the debtor is. The credit application should clear that up.

Collections in difficult situations

2011-12-13T08:51:00.000-05:00

Collections proceed forward, even in situations where the backup paperwork is a bit lacking….in other words, we live in a real world and our file is not always perfect. Do we just close the file out, even though there is a past due balance from our debtor? No, we gather what we can and proceed with collections…consider the following advice.

Gather your file, even if it is in electronic form to decide the best action to take when the debtor is challenging the account as having:

• Inaccuracies in billing practices such as double billings. Examine invoicing to determine if you are able to meet debtor’s challenges head on, or whether it is time to back down a bit and settle for less.

• Gaps in time, making your bookkeeping appear disorganized and sloppy.

• Lacking in having a contract to support the invoices.

• Lacking in any contract terms which would justify the charging of interest or late fees which appear on your invoices.

• Lacking in a purchase order matching up to the invoices.

• Inconsistencies in the statements of account from the invoices.

• Missing change orders in support of invoices for extras.

• Lacking in e-mail or other formats of replies to debtor letters or e-mails making claims of problems (written communications citing problems should have responses to avoid the appearance you ignored the problems).

Collection cases lacking in good paperwork may progress as follows:

1. Make demand on the debtor for immediate payment.

2. Listen to the debtor dispute the amount claimed.

3. Respond to debtor’s claims as best as possible while remaining vague regarding backup paperwork.

4. Should debtor persist that no payment will be made without a review of paperwork he believes you possess, reconsider your position and realize you will not prevail if you go to court with the lack of paperwork.

5. Negotiate with a new game plan: to obtain the best possible settlement.

Poker players develop a feel for when to hold ‘em and when to fold’em. Collection work can be very similar, particularly when you don’t have a good hand…you lack good backup paperwork.

See Credit and Collections Kit For Dummies for many more tips!

Collections: Does it matter who or what the debtor is?

2011-12-05T09:33:00.000-05:00

Yes, it matters who or what the debtor is. If your debtor is an individual, you certainly want to make sure to have the correct person to pursue. For example, a city may have 20 persons named "Tom Smith"...you need to verify you have the correct one!

This applies to commercial collections as well, as the debtor is a legal entity, and it must be identified.

Therefore, in matters of commercial claims, it is important to know what legal entity the client did business with.

Question: What is a “legal entity” and why is that concept important to me as a collector?

Answer: Legal entity is the term, which describes the business formation of a company. The most common legal entities are proprietorship, partnership, and corporation. These entities are very significant for the collector as more fully described in the question which follows this one.

A proprietorship is a simple form of business involving a single owner who has the business in his own name. An example is John Jones dba Jones Bike Shop. This form of business may not even be registered. Occasionally, you find the business is registered under the assumed name or fictitious name county filings in the county where the business is operated.

A partnership is a little bit more complicated but similar to a proprietorship with more people. The general partners are the owners, and, like a proprietorship, they are personally responsible for all debts incurred by the business. An example would be John Smith and Mary Smith dba Smith’s Bike Shop. A fictitious or assumed name certificate may be filed in the county. A certificate of a partnership may be filed in the county or even with the state in some states. Some states have lookup documents where you can lookup to see if a business is registered as a partnership.

A partnership can get a little bit more technical if you get into the concept of limited partnership. In this instance, there are two different kinds of partners: a general partner and a limited partner. The general partner is personally responsible for all debts and the limited partner is like a shareholder of a corporation; that person has invested money and is only liable to creditors for the amount of his investment. For example, if the limited partner invests $10,000.00 and that $10,000.00 is fully paid in, then the limited partner is not exposed for any other liability. Limited partners generally are not active in the business and are really prevented from being active in the business. The general partners are generally active in the business, responsible for day to day activities, and, again, are liable for contracts the business enters into. There must be at least one general partner and one limited partner.

Partnerships can even consist of corporations, which form partnerships. Sometimes these are also formed as joint ventures. A joint venture is different because it is formed for just one limited purpose such as to run an event for a weekend or something like that.

Corporations of course are very familiar to all of us. There are formalities. They must be filed and they must be maintained. If they are not maintained, corporations are dissolved automatically by the state they are in generally after three years.

The whole point of a corporation is that there is no personal liability for their owners. However, there can be personal liability if they sign personal guarantees or if there is a theory for piercing the corporate veil.
Corporations are on file with the state. They can generally be confirmed through a telephone number or on line access.
Each state has its own corporation law, partnership law but most states have adopted the Uniform Partnership Act so partnership enforcement is consistent and also most states, or at least 75% of the states, have adopted the Model Business Corporation Law which is also uniform.
Like the Uniform Commercial Code, these are all laws adopted in individual states. None of these are federal laws. However, there is remarkable uniformity throughout the country.
Question: Who is liable with regard to these legal entities and who can we cask to pay us when we make our demand?
Answer: This is a very good question and probably should be broken down as
follows: those legal entities which we call and can remind the owners that they are personally obligated and those business debtors we call knowing that there is only business liability.

First, the entities with personal liability:

1. Proprietorship. If the business is John Jones dba Jones Bike Shop or anything similar, John Jones is personally liable. The bike shop could have folded but Jones’ personal assets are still exposed to you, the creditor. You can threaten to sue him personally. You can threaten to sue him and take his personal assets as part of that process (this should all be done professionally as you know). There is full personal liability and a sole proprietor cannot escape that.

2. General Partners of a Partnership are personally liable the same way sold proprietors are. You can remind them when you make your collection calls that they will be held personally liable for contracts and that their personal assets are “on he line”. Of course, this is not true with regard to limited partners.

3. Corporations involved no personal liability with a few exceptions: check your client’s documents carefully to see if there are any personal guarantees which would make those individuals (generally top officers) personally liable for business debts. The guarantees may even contain some restrictive provisions such as a limitation in dollar amount or a limitation of time.

There are a few other ways that corporate officers or directors could be personally liable for debts but when making demand over the phone, I would not go into it. In other words, you may be considering a theory of piercing the corporation veil because there was some fraud or concealment or whatever. After checking with an attorney experienced in that area, you could probably make such a demand but otherwise, I would stay away from it.

A corporation, which has expired, and the debt was incurred after the expiration date is a potential basis for personal liability. I use the word “potential” because the corporation can re-file itself and erase the personal liability. That can happen any time up until the entry of judgment in most states. Let'’ take an example so that this concept is clear; Fred Jones owns Jones Corporation. He files the corporation but fails to file annual reports. After three years, Jones Corporation is dissolved. The disillusion (that is what it is called) occurs for purposes of this example on August 1, 2001. On September 1, 2001, he buys $10,000.00 worth of product from your client. At the time the produce is purchased, the corporation is technically defunct, dissolved, does not exist legally. He can use some theory such as “de facto” or “de jure” if he knows the lingo but you can also remind him that your client is prepared to litigate on the basis of personal liability since the corporation was dissolved at the time the purchases were made. There was no corporate entity at that time.

Likewise, some debt can be incurred prior to the corporation being formed. This is called “promoter liability”. If for example, John Jones owned a Jones Corporation but he incurred some debt from your client prior to the corporation actually being formed with the state (it is very easy to determine the incorporation date by calling the state) then he is personally liable to you as a promoter of the corporation.