COLLECTION LAW FROM START TO FINISH

 

1. FILING THE LAWSUIT – DEVELOPING DEFINITIVE STRATEGIES

 

 

Prepared By: Sam Blaiss

Attorney at Law

(901) 272-9575

email: sblaiss@gmail.com

 

1. Knowing the Debtor

 

1. Assess what kind of Debtor you have.

 

Corporation or other legally formed business entity such as an LLC?

Check the Tennessee Secretary of State’s website for registered agent for service of process. Could be a local person, and may be out of town. If you desire to serve someone in the local area, is that person an officer or director?

 

Sole proprietorship. May want to sue individually and doing business as the trade name. Still one Defendant but you may be able to levy on the business account. Remember that some business may get a separate taxpayer ID number (usually starts in 62-XXXXXXX) even though an individual owns it.

 

Partnership What do you know about each partner?

 

Sole Defendant, but not in business?

Husband and Wife

Check for divorce actions filed in Chancery and Circuit Court.

Do you have any personal guarantees signed?

 

2. Assess reasons why Debtor has not paid

 

a. Has the Debtor given any notification, in writing or phone, as to why they will not pay?

 

If Debtor has voiced objections, you may find that there will be a counter-complaint filed. For those that have general liability or other insurance, you may need to advise your Client that they need to place the carrier on notice that such counter complaint could be forthcoming when a collections lawsuit is filed. The Client should be advised to read their appropriate policy as to when the carrier has to be notified.

 

Do you know the amount that such a counter-complaint would expose your client to judgment? Would there still be a net recovery to your client, or could your client end up owing Debtor money? This might impact your attorney fee if you have a contingency agreement for fees.

 

Will you have problems with proof?

Are there witness issues?

 

b. Do you know of any financial problems that Debtor may be having?

 

Check the United States Bankruptcy Court Clerk’s office at (901) 328-3500 to see if there is a pending bankruptcy. If so, you may be required to stop collection and proceed through bankruptcy court, even if you may have not been listed as a Creditor. If you are unsure, refer to a lawyer that practices in bankruptcy court for advice and consultation. You can also call the Chapter 13 Trustee at (901) 576-1313 to inquire about the status of any Chapter 13 case, whether you may be included, Debtor’s plan payments and percentage to be paid to unsecured creditors. If you find the Debtor is in bankruptcy, any form, and you do not know bankruptcy law, you may want to ask a bankruptcy creditor’s attorney to assist you. You may be able to file a motion to lift stay, you may have post-petition creditor status and could argue for special class treatment, or other issues, and if you do not know what you are doing, this may not be the case for on-the-job training.

 

Check the public records of General Sessions Civil Court, General Sessions Criminal Court, Circuit Court Clerk and Chancery Court Clerk. This will show quickly if there are others that are either suing or in the midst of a lawsuit against your Debtor, or if your Debtor has any criminal charges pending. This may be helpful if you have a Debtor that you do not know if they have a current address and if you can find active cases, you may be able to uncover a place where the person can be served. Also, with pending litigation, you can call the other parties suing your Debtor to find out about their suits, financial viability of the Debtor and other information. It may be that accepting some smaller amount in settlement would be preferable to litigation that may result in other cases concluding before yours, or driving the Debtor into a bankruptcy.

 

You can check the Register’s office and the Assessor of Property’s office and each have websites. Find out what property the Defendant owns, check for transfers, check for other judgment liens. Find out how much the mortgage is. You can estimate sometimes by checking the deed of trust to see if the deed shows how much was borrowed over what period of time. You can play with the interest rate, and run an amortization table and estimate what is owed. The Assessor will tell you what the property is assessed for. Between these two, you can get an idea of equity. Also, if you have an address that you want to confirm may be good for service, both websites might show who the property shows as the owner.

 

c. Do you know what assets your Debtor has? Where the Debtor works, banks? Does the Debtor own property or personalty?

 

How much does your client know about the Debtor? Does the Client have any credit application? Can your client run a credit-check on the Debtor – this includes not only whether your client is a subscriber to a service that provides credit reports, but if that agreement allows the Client to obtain credit reports after the credit has been extended?

 

Look at the Shelby County Assessor’s website for the Debtor and any addresses you have for Debtor. Make a note of the assessment on the property, what the house is said to be worth. Then look at the Shelby County Register’s website. See what property Debtor owns, or who owns the property for the address given for the Debtor. See what other liens or judgment liens or notices are filed for the Debtor. Make a note of the deeds of trust – what is the original amount and is the term of the loan listed (if so, you can do a rough calculation on what the outstanding amount may be, to see if the house has equity).

 

One aspect of my practice is that I always copy a check that a Client tenders for payment for the file. I have advised my clients to do that as well. In the event that you must collect from someone, having that check copy in the file gives you the first place you will levy upon when judgment is obtained.

 

Is the Debtor going to be judgment proof? Review the exemptions under State law, and remember that Social Security and disability payments are exempt. If you have child support or alimony payments you are collecting, check the statutes for certain exceptions.

 

d. Do you have a contract or note that provides for waiver of notice?

 

Do you think the Debtor will respond to a collection letter from an attorney? Make sure that you comply with the Fair Debt Collections Practices Act. The threshold for what constitutes the regular collection of accounts could be a very low threshold, say one collection action a month. Also, take to heart that the definition of what constitutes a Consumer debt will be broad. Also, do not give the warning prophylactically, that is, do not give the FDCPA notice to a corporation or LLC or in a clearly business to business setting. You advise a Debtor that they have a right, you may be setting yourself up for an argument that a failure to provide the information is a condition precedent to proceeding to trial.

 

If there is no waiver of notice or waiver of demand provision in the contract or note, you will need to send a letter advising that the balance is owed and actually demanding, or asking for, payment of the balance. Sometimes, it might be advantageous to preempt the Debtor and send copies of documents substantiating the claim and any other charges. I have found it particularly useful to remind the Debtor if there are personal guaranties. You may also want to tell the Debtor that if the matter can be resolved short of court, your fees and other charges will be lower.

 

1. How to Effectively Get the Debtor’s Attention

 

See comments above with regard to sending copies of personal guaranties. If the Debtor has put into writing its satisfaction with the transaction/product/service, you may want to send a copy of that. If you had asked the Debtor to do something and they did not respond, you might want to remind them in writing that they have acquiesced or accepted your position in light of their silence or failure to act. To a Debtor that is not experienced in courtroom trials, this may be enough to let them think they have a losing position.

 

Is the Debtor interested in keeping a good credit report? Do not run afoul of the Fair Debt Collections Practices Act, but in conversation, you might remark that lawsuits are public records and in your experience (if true) have shown up on credit reports.

 

In drafting your letter to the Debtor, should you desire to correspond before filing suit, are you interested in working out payment terms? Many Debtors may not dispute the debt until they are in trial, backed into a corner. They may be amenable to signing a promissory note. This might be useful if your client did not have a signed contract, because now, if the note is defaulted, you can provide for costs of collection and attorney fees and can add an interest factor into the note. You can also add a provision that the consideration for the note is the forbearance of a collection suit and add language that the Debtor acknowledges receipt of the original bargain in the matter (services, goods, etc.) and that there was no dispute with the client’s delivery thereof. You might then be able to foreclose any possibility of a counter complaint or successful defense to a collection action by arguing the entering into the note is an accord and satisfaction of the original transaction between the parties.

 

I have seen some attorneys send copies of a proposed lawsuit. I do not see that as much now, as I did some 20 years ago when I was a new attorney. I would not advise sending the lawsuit copy, there may be some mystery of what a lawsuit looks like and you take that element away by giving it in advance.

 

While you might want to be aggressive in collecting accounts for clients, do not make this a personal battle. Keep your emotions in check, and let it be your client’s legal action and not a personal vendetta to you. Remember that at the end of the day, the usual goal is to put money into your client’s hands. Be creative. Maybe have a suit filed, but tell the Defendant that if a payment schedule can be worked out, in writing, you can continue the lawsuit and avoid a judgment being rendered.

 

1. Avoiding Counterclaims

 

Be aware that many times, a counterclaim will be filed alleging the violation of the Tennessee Consumer Protection Act. Can you time your lawsuit so as to be outside the statute of limitations or statute of repose for this Act? Likewise, say you are collecting an attorney fee. If you can wait until after one year from any event that might give rise to a claim of some sort of personal injury claim or other negligence, you might then only have to defend against a regular breach of contact counter-claim which is a lot less probably factually based, and takes away many compensatory damages such as pain and suffering, etc.

 

For the client who renders services, ask the Client if the Debtor has ever voice complaints over the phone or in writing. Ask if there would be a need for expert witnesses to defend Client’s work and if anyone inside and outside the company comes to mind to establish the standard of care, standard of workmanship, or other standard that is required. Will the Debtor be able to qualify as its own expert?

 

What would be the scope of possible damages in a counter complaint? Would those damages still be less than the amount you reasonably expect to win? Has the Debtor indicated amounts that it would seek or that it has incurred due to any alleged fault of the Plaintiff?

 

1. Obtaining Judgment

 

Will you be filing your lawsuit on a sworn account? If so, always good to file the original with the original lawsuit, have copies for the Defendant with the service copies, and, IMPORTANTLY, have a duplicate original sworn account for court when you go to take the judgment. Sometimes, our General Sessions judges indicate that the sworn account got torn off. I like to have the interest computed to the date that the affidavit is being executed by the client, and then have a statement that the account bears interest and specify the contract rate of interest. I then compute interest to the date of judgment for my judgment, and the sworn account will at least have something in the record/.jacket about the post-judgment interest rate if in fact the contract rate of interest is higher than 10%

 

Make sure you have a copy of any signed contract or document that allows your client to charge interest. If it is on the invoice, with net terms, at least show that to the Judge. Also have documents that are signed by the Defendant that show they agreed in writing to pay reasonable costs of collection and attorney fees. Some accounts are less than the threshold where a 1/3rd contingent fee makes sense. I then in those cases ask the Judge for a one hour attorney fee at my hourly rate. If you do not ask, you do not get.

 

If the Debtor shows up, they may only be interested in working out a payment schedule. I like to incorporate any payment terms into the order when the judgment is announced, usually by consent. In courts of record, you end up preparing the order and can make those changes. If in General Sessions, the judges are pretty good about writing that as part of the order. In the event that the Debtor defaults and you issue a garnishment, they may likely be able to get a stay/release from the clerk on a motion to set installment payments, but you would then be able to argue that they have in effect had the 1st motion, by having the installment terms included in the order, or at the very least, you might be able to successfully argue against having the payments lowered.

 

Now, if the Debtor shows up and wants to contest it, you need to prepare for a trial. Assume that the Debtor will have counsel. It is imperative to have original documents for trial. You should specify that your witness(es) have as many documents and as complete of a file as there exists. Who qualifies as a keeper of records for your client? Are the matters contained in the records that you intend to introduce actually kept under the authority and control of the witness? In other words, anticipate that the other side is going to question everything. Make sure you have an answer for any question that could arise.

 

At trial, I see that a lot of collections attorneys that face countersuits attempt to introduce their defense to the countersuit in their case in chief. I don’t and in opening statement, I tell the judge that our proof will show the debt is justly owed and remains unpaid and that, I will call my client in rebuttal to the Defendant when they present their counter-complaint after I have rested my case in chief. Now, most attorneys will then cross-examine your client about their failure to do this or that, and that will get into your client’s defense, but if my witness is a good witness, I would rather have that client give his valid reasons when the witness is being cross-examined and to me, it makes it appear that we are secure in our belief that the debt is owed, and that the defense being asserted is not factually supported. Now, things change in trial, and this is not the only way to present the case, but if a client has been to court before, and they are a strong personality, then this might be a viable way to try the case. Remember, you have to establish a prima facia case that the debt is owed, so do not lose sight of that.

 

Do not forget to get the records introduced into evidence. It might be a good idea to get them entered, and have a copy for the witness, the opposing counsel, and yourself and let the Judge be reading the original at the time your client goes over the document in direct examination.