The first two articles in this series dealt with ways that the small business owner can collect their accounts on their own. However, even the most bulletproof systems and follow-ups will not prevent people from not paying all the time. There comes a point, after the incentives to pay and after the notices to pay, in which you as the small business owner must act affirmatively to get paid. This is the point in time when you must get legal counsel involved. This is the point in time where most small business owners are hesitant to act, however, if you have followed up numerous times and have given the debtor every opportunity to pay, odds are you have taken it as far as you could on your own. Most attorneys who do collection work have a streamlined approach to collections. Many practice in bulk, and want to collect your money as quickly as possible with the least amount of time and money spent. Make sure that when you retain counsel, you are informed of their fee schedules as well as their procedures in dealing with your particular type of case. That being said, now that you have turned over this account to your attorney, who is considered a third party to the transaction, certain laws now come into play. The first thing your attorney should inform you of is the implications of Fair Debt Collections Act (FDCA). The FDCA is the main body of law which governs the collection of debt. Your attorney will be required to comply with the Act, which includes the Act's notice provisions. The Act requires a thirty day notice be sent to the debtor informing them of the debt as well as including statutory language to comply with the act. After the notice has expired, the next step is a Court hearing. Your attorney will file a complaint on your behalf with the Court of competent jurisdiction to recover your debt. You will have a hearing on the merits of the case, and the Court will render a decision in the form of a judgment. Should the Court decide in your favor, you will receive a judgment against the debtor in the amount the Court deems just. At this point there seems to be some confusion with a lot of clients. Many clients think this is the end of the game, that the judgment is the last step. Unfortunately this is not the case. The judgment, once it becomes final and properly entered with the Court, merely gives you the authority to collect on the amount listed therein. You must execute on the judgment to receive your money. Assuming now that you have a perfected judgment, how can you collect? There are numerous avenues that your attorney can exercise in order to collect your money. The first, and the one most commonly known, is the Sheriff's Sale. You can file the appropriate paperwork and have the Sheriff levy the personal property of the debtor for sale. A public auction style sale is then scheduled on the debtor's belongings. Sheriff's Sales sound great, but in practice they are usually unsuccessful. Unless you have a debtor with either expensive assets or a personal vehicle that has equity in it, sales do not usually generate a lot of money. Ask yourself the question of how much you think a stranger's used sofa is worth, not a lot. The real leverage you gain with a Sheriff's Sale is fear. Prior to the sale, the Sheriff will enter the Debtor's property and make a list of their belongings. He will also post a notice on their door, visible to the public, scheduling the sale. Many times, the debtor will not want the public embarrassment or to have strangers walking through their home bidding on their belongings. This threat alone leads to many debtors either paying the amount or entering into a payment plan with the creditor. Other avenues open to execution are bank garnishments. Assuming you know where they have an account, you can freeze the debtor's bank account and unilaterally remove the funds from the account, minus some statutory exceptions. Again, in addition to this being a means of recovery of the debt, many times the mere action alone has the coercive effect of making the debtor pay. As you can see, while the legal system can be very effective, it can also be time consuming as well. The key to executing on the bad debts is two fold, first is to find a qualified attorney to represent your interests, and second, provide that attorney with as much information as possible to effectively represent you. The final article in this series will deal with formulating information systems prior to engaging in work for the client which will greatly aid you and your attorney in legally pursuing bad debt.
About the Author
Ronald C. Isgate, Esquire is the Managing Partner of Isgate & Chiccarine, P.C., a full service law firm that concentrates its practice in Small Business and Real Estate law. Mr. Isgate can be reached via telephone at (215) 396-1020, risgate@isgatelaw.com. For more information please see our website www.isgatelaw.com.
