Invoice Collection – Creditors Rights 101

Do-It-Yourself Creditors: Beware of the Claim Redaction Requirements in Bankruptcy Court

After many years of Tennessee Bankruptcy Court practice, I notice trends in litigation. Years ago, there was a flurry of attacks on Deeds of Trust for invalid notaries. Then came the debtors objecting to the documentation filed on “big mortgage lender” mortgage claims.

Right now, the hot issue is adversary proceedings (i.e. bankruptcy lawsuits) against creditors for failure to redact personal information when they file Proofs of Claim.

When you file a Proof of Claim in Bankruptcy Court, you are obliged to comply with Federal Rule of Bankruptcy Procedure 9037, which provides in part

…in an electronic or paper filing made with the court that contains an individual’s social-security number, taxpayer-identification number, or birth date, the name of an individual, other than the debtor, known to be and identified as a minor, or a financial-account number, a party or nonparty making the filing may include only:

(1) the last four digits of the social-security number and taxpayer-identification number;

(2) the year of the individual’s birth;

(3) the minor’s initials; and

(4) the last four digits of the financial-account numb

To clarify, “redaction” means that you must cross-out or otherwise remove the information, other than the information expressly allowed above. To keep it simple, I keep a Sharpie pen at my desk and mark up any loan/account documents I file as exhibits to my claims.

Now, debtors are watching all claims filed and, where a claim contains prohibited information, the debtor files a Motion to Redact and that motion seeks also sanctions against the offending creditor. Recovery can include damages, costs of future credit monitoring, and attorney fees.

I know what you’re thinking: your borrower filed bankruptcy on your debt; you’re never going to get paid; you went to the trouble of filing a claim on a debt you’re never going to get paid on; and, now, they can sue you if you do it wrong?

Yes, they can.

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.

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.

Collection Advice for Lawyers: Use Detailed Invoices as a Way to Justify your Fees and Get Paid

I received a collection notice in the mail last week, from a Georgia law firm that domesticated a judgment for one of my Tennessee bank clients. I had subconsciously sat on their invoice for a month, mainly because I hated their invoice and didn’t want to forward it to my client.

It wasn’t for a lot of money, but I hated it because it didn’t tell a compelling story showing the value my client received.

The invoice didn’t have the hourly rate of the person providing services. The time spent for each task wasn’t itemized. The invoice provided only minimal details about the work provided. In short, it didn’t prove that value was given, and it didn’t tell a story.

If a lawyer is ever going to advocate, the time is when he’s asking to be paid. When I send out a bill, I always keep in mind:

Always provide (too much) detailed information about the work you do for a client on a bill. Leave the client no question that they are getting lots of great legal work.
Include all the “technical” information on the invoice, showing how much time is spent on each task, who performed it, and how much was charged for the task.
Most important, craft your time entries in a matter that tells a story, which will show the client the value of your time.

Compare: the below one (1.0) hour billing entries:

“Legal Research on jurisdiction”

“Legal Research in Tennessee statutes and cases on issues related to Delaware corporation doing business in Tennessee and whether internet website justifies lawsuit filed in Tennessee”

Which one is more likely to be paid?

Collection on Unpaid Legal Invoices in Tennessee: One Really Good Reason to Wait One Year

The Tennessee Court of Appeals issued a recent opinion discussing the elements of legal malpractice claims. The case is Tucker v. Finch,No. E2010-01704-COA-R3-CV, Slip. Op. (Tenn. Ct. App., Aug. 30, 2011).

The case provides a good summary of the statute of limitations on legal malpractice actions, which must be “commenced within one (1) year after the cause of action accrued.” Tenn. Code Ann. § 28-3-104(a)(2). The one year clock starts ticking “pursuant to the discovery rule “when (1) the client suffers an actual or legally cognizable injury, and (2) the client knows, or in the exercise of reasonable diligence should know, that the injury was caused by the attorney’s negligence.”

How is this relevant to collections? According to the ABA, most attorney malpractice claims are filed in response to attorneys taking collection actions against clients. Once you sue or threaten to sue a client for unpaid bills, it’s exponentially more likely that that client is going to attack the value of your legal services.

But, don’t forget, the statute of limitations for collection on unpaid debt–including unpaid legal invoices–is six years in Tennessee. Malpractice actions must be filed in one year.

As I’ve written before, this is why lawyers wait at least a year to collect on unpaid invoices.

If the underlying lesson to aggrieved clients in the Tucker case is “don’t sit on your malpractice claim rights,” the flip side of the coin may be “let sleeping dogs lie, at least for a year.”

(Side-note: I’m not condoning malpractice or encouraging attorneys to avoid responsibility. But, I know from experience, you can provide world-class services and, faced with a bill for world-class services, some clients are going to allege you did something wrong. On those clients, wait a year.)

How Small are the “Small Claims” in General Sessions Court in Tennessee?

In Tennessee, you hear lots of talk of General Sessions Court, which is Tennessee’s version of small claims court. Of course, “small” is a relative term–General Sessions Courts in Tennessee have jurisdiction to hear civil cases with as much as $25,000.00 in controversy. See Tenn. Code Ann. § 16-15-501.

Trivia Time: In what three situations can a creditor obtain a judgment that exceeds the $25,000 jurisdictional limit in General Sessions Court? The Answer is after the jump.

Continue reading “How Small are the “Small Claims” in General Sessions Court in Tennessee?”

Invoice Hint: Do your Homework Before Extending Credit

As a collections attorney, bad invoices drive me crazy. A collection lawsuit is only as good as the paper it’s enforcing, so when invoices have serious defects, it’s hard to do a good job, because the other side has easy defenses.

A common issue is an invoice (or credit application) that doesn’t get the borrower’s name right. For instance, the document doesn’t clearly identify and completely name the party buying goods. As easy as it sounds, this happens all the time, particularly when dealing with corporate entities.

As an example, let’s say your invoice is simply addressed to “Smith Contractors.” Is that an “Inc.,” a “LLC,” or “John Smith d/b/a Smith Contractors”? This is critical in determining who you sue. Even if the borrower writes down “Smith Contractors, Inc.,” there might not actually be a valid company set up under that name.

Here’s an easy fix: check out your prospective borrower’s corporate status on the Tennessee Secretary of State website, by using the “Business Information Search.” You should be able to locate any valid corporate entity, and, if you can’t find it, then you should ask more questions about the legal status or name of your borrower.

Trust me, it’s better to ask those questions on the front end, before you extend the credit. If you wait to do this after the account is in default, it is probably too late.

Be Careful When Accepting Voluntary Payments from a Discharged Debtor

The Bankruptcy Law Network Blog answers an interesting question: despite receiving a bankruptcy discharge, can a borrower then voluntarily repay discharged debt? The answer is “Yes”, but the better question may be “Why?”

The post notes that a borrower may have personal reasons for repaying some discharged debts. Examples include a debt owed to a family member or to a creditor who is crucial for future services (i.e. maintaining a business trade credit relationship).

The post, however, doesn’t consider the creditor’s perspective in this invariably risky situation. If you are prohibited by the discharge injunction from affirmatively collecting the debt, how do you accept payments without crossing the “no collections” line?

There’s no easy answer to that question. A prudent creditor must be very careful in all discussion and documentation of the discharged debt, and it should keep such debts separate from all post-bankruptcy, non-discharged debt.

Frankly, the creditor should treat such payments just like a “gift”–there’s no obligation for the payment, and you can’t force or request that the payment be made.