Category: Invoice Collection

My Thoughts on “What To Do When a Creditor Knocks” from the Wall Street Journal

This weekend’s Wall Street Journal ran a article on how to respond to bill collection efforts, called “When Bill Collectors Knock.”  The article mixes good advice with a little bad advice. Here’s my bounce.

Good advice:

Take the call. It is virtually impossible to resolve a problem without addressing it head on. The best way for borrowers to handle a debt they can’t pay is to talk with the lender as soon as possible. Then they should work out a plan to keep the debt current with a smaller payment or to seek a temporary delay until they can pay something.

This is good advice. I talked about the importance of communicating with creditors in an earlier post. The worst thing a debtor can do is be silent, as that invites collection.

Unrealistic advice:

Keep detailed records. Staying on top of debt can be tough. But keeping records and careful notes can pay benefits if borrowers are sued.

I agree that it helps to keep payment records and copies of old invoices, but how realistic is that, particularly with debts that are years old?

But this is better:

Know the rules. Every state puts a limit on how long a creditor is able to pursue borrowers in court.

Your best focus, however, could be records showing your past payment. In Tennessee, the statute of limitations on debt collections is six years from the date of default. If you can provide that it’s been more than 6 years since your default, you may be able to obtain a dismissal of any action.

Bad advice:

Negotiate. Because debt is bought at a discount, collectors should be willing to bargain, perhaps accepting just a fraction of what is owed. If borrowers can come up with the money, they should be able to negotiate a settlement of 50 cents to 65 cents for each dollar owed…

Earlier, the article suggests that most unpaid debt collectors are collecting debts that they paid a mere four cents on the dollar for. So, the article suggests, you should haggle for payments in the range of 50 cents on the dollar.

While this may be true for some debts, in my experience, it’s not as common as the anecdotal stories suggest. The creditors I represent don’t buy debt and so any talk of ten cents on the dollar is a waste of time. Plus, even if a creditor has paid a small amount for a debt, that doesn’t mean that they will accept a small amount to settle, especially if the creditor perceives the debt can be collected in full.

Don’t get me wrong. I always say “Money Talks,” but if you’re making a low ball offer, you have to back it up with proof that your offer is the best you can do, and that requires proof of a debtor’s finances, other debts, etc.

My take-away this this: Over-communicate; Confirm that the debt isn’t over 6 years old (in Tennessee); and Money Talks (or, at least, proof of that the money you’re offering is the most the creditor will otherwise get).

Collection Advice for Lawyers: Get Your Bills Out on Time

Here we are, at the end of the year, and I’m worried about getting all my collection work done for my clients…as well as my collection work on my legal invoices. Yep, it’s the year end cash rush. Trees are being shaken. Happy Holiday emails have invoice reminders at the end. And, yes, unbilled time is being discovered and rushed out the door.

I’ve talked about the best practices for legal invoices to get lawyer bills paid.

This morning, I saw a tweet by @rocketmatter titled  Legal Billing Rule # 1: The Longer You Wait The Less You’ll Get Paid. 

This is great advice. The longer you sit on a bill, particularly on a complex matter, the less likely it is that the invoice will be paid in full.

If you don’t invoice time as you go, you run the risk of shocking the client when you send them 2-3 months of billable time. It is not good to shock a client with your bill. Clients are far more likely to pay bills as the case progresses, in manageable amounts.

Plus, if a client is going to object to the cost to litigate a complex matter, wouldn’t you rather they see the bills for work after one month of litigation? Even the most eagerly litigious client gets back to reality in the face of a zealous lawyer’s bill. Give them this information early, rather than after you’re neck-deep in depositions, Motions, and unbilled expenses. Yikes.

Lawyers aren’t cheap, and the practice of law is not the type of work that lawyers are willing to do for free. If you want to get your bills paid on a timely basis, get them to your client on a timely basis. If you sit on the bills for months and put a low priority on the invoices, then your client will put a similarly low priority on paying them.

Is Naming Your Kid “Junior” Going to Cause Them Trouble? Cross-Generational Financial Woes May Result

Big news here at Creditor Rights headquarters: My wife and I are expecting a baby! We don’t know the gender yet, but we’re reading Baby Name Books cover to cover, looking for that perfect mix of tradition, syllables, and what sounds good.

One thing we’re not considering, however, is a Generational Title, i.e. “Junior.” The baby name experts say it’s a mix of good and bad.

From my perspective as a collections lawyer, I think it can be bad, because I’ve seen one generation’s financial and legal troubles wreak havoc on the other generation. This goes in both directions, with sons causing fathers trouble, and vice versa.

Just this past year, I’ve seen liens on a son’s land ostensibly attaching to the father’s land; wage garnishments on the father’s wages based on the son’s unpaid debt. Bankruptcies showing up on the wrong person’s name, etc.

Much of this stems from our online world, which often indexes information about us based on Name and Location (see Facebook). Two people with the same name who live (at some point) at the same address are going to confuse google, banks, property records, and everybody else.

You might not care about confusing your collection creditors (some people relish in this chaos), but, when one generation’s finances go bad, you’ll care about the impact on your ability to get a loan and sell your house, without having to explain the embarrassing details of your dad’s money troubles.

Don’t get me wrong: it’s a great tradition and a wonderful shared bond between generations. But, when one generation has legal or financial troubles, it’s not just a name that is shared–it’s also the dirty laundry of money mistakes.

Borrower Beware: Co-Signed and Guaranteed Loans Can Haunt You for Years

In the spirit of Halloween, the scariest article in this weekend’s Wall Street Journal wasn’t about the story about new ways that haunted houses are terrorizing people.

Nope, the one that gave me nightmares was about the perils of co-signed debt, lurking in the shadows, waiting to attack a parent (or grandparent) for co-signing a student loan.

And this is a monster that can’t be out-run: In addition to being 100% responsible for the debt, the student loan debt could be deemed non-dischargeable in a Bankruptcy by the guarantor.

Long story short, the debt could follow you for years, until it’s paid in full. The Wall Street Journal did a follow-up blog post, providing more advice for those considering co-signing student loan debt.

According to that blog post, “90% of private loans had co-signers last year.” The reason is obvious: if there is any level of risk of non-payment, a lender wants to get more obligors to collect against.

This should be a cause of concern for any person asked to co-sign a loan, whether it be a consumer loan or a commercial loan. Think carefully before signing it. If it goes bad, you could be liable for the entire amount.

Also, read the terms carefully. On many personal guaranty agreements, especially ones involving long term credit advances, the guarantor’s obligation to guarantee advances may out-last their involvement with the business that borrowed the money.

Sometimes, the only way to beat this monster is to never sign up for the fight in the first place.

Digital Footprints: The Best Credit Applications Include E-Mail Addresses

I’ve got a client who does a great job on their collection referrals. Their referral packet includes the usual: addresses for the borrower; whether the borrower owns the property; employment information; banking information; and copies of the relevant loan documents.

But, tucked away in their Credit Application, there’s an extra line that includes a unique request: provide an e-mail address.

You may wonder how an e-mail address could help in collections. If the borrower isn’t answering your calls and is dodging your process server, you may think, how quickly would they delete an e-mail from you?

The e-mail address isn’t merely a way to make contact with the borrower. Instead, it provides a unique way to identify and locate them online. In collecting on an unpaid debt, I’ve found that an e-mail address is as close as a digital footprint as there is online.

As an illustration, imagine running a Facebook or LinkedIn search for “Mike Jones.”  You’ll get hundreds of false hits, because there are probably a lot of Mike Jones in this world. But, with an e-mail address, you would run a search for “mikejones1974@gmail.com.” There’s only one of that person.

So, that internet search results in finding the person you’re looking for, because Facebook and other social networking services allow you to search both by name or e-mail address. Plus, you’ll potentially find a long list of online activity, whether it be comments on blogs (be careful in the comments section below) or other postings online.

People tend to keep active e-mail addresses, especially ones they’ve used for years. It’s a great resource, and an easy, discrete piece of information to ask for.

The Wisdom of the Six D’s of Debt Collection

I learned today about the passing of Art Willard, a well known and well liked banker and special assets officer in the Nashville area with whom I worked on many deals in Bankruptcy Court, in Chancery Court, and at the auction yard.

As a banker, Art was the kind of guy you’d want collecting your debts, because he was smart, tenacious, and could smell money a mile away. As a borrower, Art was the kind of guy you wanted coming after you, because he was smart and knew when a proposal was the best deal he’d get.

In Bankruptcy Court a few years ago, Art and I sat and sat, waiting for a big case to get called. I heard stories of him accepting monthly payments of fifty cents on a Judgment and repossessing airplanes. I also learned the 6 D’s of Debt Collection.

Two Signatures Not Required: New Tennessee Supreme Court Decision Finds Personal Guarantees will be Enforced by Their Clear Text

Lately (i.e. in this economy), I’m constantly fighting over the enforceability of personal guarantees.

A personal guarantee is an agreement by which a third party agrees to personally repay another person’s/corporation’s debt. When a corporate entity doesn’t have a credit history or sufficient assets, a lender will generally ask for an individual to personally guarantee the debt. Creditors, obviously, want guarantees, because more parties obligated to repay your debt increases your chances for repayment. If a creditor files a lawsuit, it can obtain a judgment for the debt against all of the guarantors.

With the rise in defaults, guarantors are getting sued more than ever before. Their only defense is to attack the guarantee, and, as a result, the text of these agreements is constantly being tested. A common issue relates to the signature line(s): if a corporation’s president signs a contract that contains guarantee language, does the president need to sign twice, both as “Bob Smith, President” and then a second time as “Bob Smith?”

In the past, the overwhelming outcome was that there needed to be two signatures–one from the President and one from the Individual.

So, in that context, you’ll understand why I liked the recent Tennessee Supreme Court case of 84 Lumber Company v. Bryan Smith (Dec. 12, 2011). There, the Supreme Court looked only at the text of the contract. That text clearly said that the person signing the contract for the corporation was also personally obligating himself  to serve as the guarantor. When the text is crystal clear, it doesn’t matter that there is only one signature.

So, even though the only signature on the contract was by ““R. Bryan Smith, President,” the Court said “[t]he explicit and unambiguous language of the contract points to only one conclusion: Mr. Smith agreed to be personally responsible for the amounts due on the account.”

A good practice would still be to get two signatures, but, in light of this case, it’s certainly not fatal to only have one signature.