Category: Judgment Collections

A few months ago, I mentioned how I warn all first-time collections clients about the unexpected hassle of suing on their invoices. In addition to the legal expense, I’m referring to the hostile responses, the denials, and the potential court scrutiny of their services and billing practices.

For an example close to home, there’s a reason why lawyers wait a year to sue clients on unpaid invoices. (Hint: the statute of limitations for malpractice claims is one year long.) You see, in response to lawsuits for unpaid legal invoices, it’s common for the former client to allege malpractice and attack the quality of work.

I was reminded of this when I read this Tennessean article about lawsuits filed by Nashville private schools to collect on unpaid tuition. I was doubly reminded about the “hassle” part when I scanned the comments, with the schools’ dirty laundry getting aired for the world to see.

The school is perfectly within its rights to seek payment of past due amounts, but collections can bring out the worst in people, especially in this economy. Other than allowing no unpaid debt, there’s no avoiding these issues, so be sure to consider these issues when starting the collection process.

It isn’t always just writing letters and cashing checks.

If you’ve watched much late night TV, you’ve probably seen the commercials for debt relief services promising the path out of debt through settlement with creditors. These companies ask consumers to pay them their money, then they’ll attempt reach out to the creditors and, they say, settle all debts for a fraction of what is owed.

In these tough times, consumers are looking for any help they can get, but many commentators say that debt relief agencies are a rip-off. Many cite the fact that the services pay themselves first, and, only after they have paid themselves, do they try to settle the debts.

As a creditor’s attorney, I’ve worked with these agencies on a number of occasions. On one hand, it’s efficient to deal with a business-savvy party on the other end of a debt repayment transaction. On the other, I know how the system works, and I know that, for any dollar they are offering to my creditor client, they have already kept as much in their own pocket.

Long story short, be wary when dealing with one of these companies, on either side of the table.

The goal in judgment collections is to get as much money as possible, as quickly as possible.

The reason behind the “as much as possible” part is easy: clients want full recovery of the amounts owed.

The reasons behind the “as quickly as possible” are numerous. Maybe you’re competing with other creditors for the same pot of money. Maybe your debtor is getting ready to leave town (or spend all his money). Maybe you think a bankruptcy is on the horizon.

As a result, when deciding what collection tool to use first, always consider which tool gets you the most money the fastest. Judgment liens that immediately attach to any and all properties are a great start. Bank levies that seize all the money in a bank account aren’t bad.

When in a hurry, however, wage garnishments aren’t always your best bet. Here’s why: under Tennessee exemptions law, a wage garnishment is only effective against about 25% of a debtor’s wages (Tenn. Code Ann. 26-2-106). Plus, wage garnishments are applied in the order they are filed, meaning you can get stuck behind other creditors. Finally, a wage garnishment might be the last straw that pushes someone into Bankruptcy…meaning you probably get paid nothing.

Don’t get me wrong–knowing your debtor is working and earning regular income is a great sign of collections to come. But, in the grand scheme, getting just 25% of the earnings spread out over 6 months might not be your best first move.

Ok, I realize that this post drastically increases my chances for a visit from the Ghost of Christmas Past, but here goes: Christmas is a great time for collection of debt.

Here’s why: Debtors who run retail businesses probably are flush with cash, whose bank accounts can be levied against.

(Just in case Santa reads this blog, I’m not going to point out that individuals may have more cash this time of year than others.)

Under Tennessee law, you can garnish a judgment debtor’s bank accounts, and that levy will freeze and seize all of the funds in the account, which will be paid to the Clerk–and then to you.  The difficult part is discovering where the debtor has bank accounts and, then, catching that account while it has money in it.

Before you call me a scrooge, keep in mind that if the debtor doesn’t pay the creditor from this money, it’ll probably go to other creditors.  Make sure that you’re at the front of the line for payment. While smart research is the biggest step, effective collections sometimes depends on luck and good timing.

Ghost of Christmas Past, bring it on.

I went to Bankruptcy Court yesterday with a real collections expert. I won’t reveal name or age, but I’ll say this: he was telling me a story involving accepting weekly payments of 50 cents on a $50 judgment.  (That means he’s been doing this a very long time.)

While waiting for Court to start, he told me about the Six “D”s of Collection. When a borrower veers into one of these, you’re far more likely to be dealing with a bad account:

• Death
• Divorce
• Drugs
• Dice (All forms of gambling)
• Diamonds (High rollers)
• Doctors and Dentists

Some of these are obvious, and some might be offensive (sorry, Dr. Nickels), but all make sense.

And heaven help you if you just loaned money to a plastic surgeon with a weak heart who is celebrating his recent divorce with a trip to Las Vegas with an all inclusive stay at the Bellagio.

I had lunch with a client today–actually, the Chief Financial Officer, the Regional Credit Manager, and my local Credit Manager (yes, it was a fancy lunch, and I was paying)–and, toward the end, the CFO asked a great question: Are we doing anything to hurt ourselves or our ability to collect our debt?

What a simple, effective question to ask yourself, and your attorneys, at least once a year.

My response was what they wanted to hear: they aren’t.

They have solid credit applications, which provide for recovery of attorney’s fees, late charges, and include/require personal guaranties of corporate debt. Their invoices are clear and include due dates and adequate descriptions of the services provided. Internally, they seem to have good practices for prompting action on past due invoices that preserve all applicable lien deadlines.

In other words, they aren’t creating any openings or holes for their borrowers to avoid repayment of debt. At year end, it’s a good idea to review your practices and documents, whether internally or with counsel, with an eye to addressing any issues.

In this economy, people are looking for any reason to avoid repaying their debt. Be proactive in eliminating those reasons.

A few years ago, the creditor’s lawyer in me thought that Myspace, Facebook, and LinkedIn were going to be a debt collector’s best friend. A savvy collector, I thought, would use the employment information, pictures, and all the other information available on the sites to locate, investigate, and collect against their borrowers.

I mentioned this a few months ago, and, recently, Credit and Collections News ran a story on Facebook’s efforts to prevent this, and so did the Credit Slips Blog. In those instances, collectors were leaving collection communications on debtor’s facebook walls.

While I don’t agree with their exact tactics, it is smart to utilize these sites. Social media sites are designed to be a hub of an individual’s life, with cell phone, address, work, and other personal information, all freely available. If people are going to make that information public, then it should be open for public, third party use. Why wouldn’t a creditor use those sites?

Plus, if you’re going to accept a friend request from a stranger in a bikini, you sort of deserve what you get.