Collecting a debt through legal means is a fairly straightforward process for experienced counsel, but the success of the endeavor depends on numerous variables.
May 15, 2013 – Successful debt collection requires knowledge of the relevant rules and regulations. It also requires gathering and assessing all relevant information about the debt, a process that presents opportunities for collecting the amount owed without having to resort to litigation. Collecting a debt can be one of the easiest activities an attorney undertakes or one of the most complicated.
In this video, Jim McNeilly, Pleasant Prairie, and Kurt Carlson, Chicago, both of Carlson Dash LLC, talk about the straightforward process for experienced counsel and the numerous variables that are necessary for success. McNeilly and Carlson discuss the five steps presented in their article “How to Collect a Debt” published in the May issue of Wisconsin Lawyer magazine.
Step 1: Gather the Necessary Information. Carefully review the information; it will help you assess the best avenues and points of leverage to pursue and evaluate the relative strengths, weaknesses, and defenses of your client’s claims. In most cases, a successful strategy for accomplishing the goal of collection begins and ends with having an overabundance of information. Credit files will have information about creditor and guarantor. This will give you a picture of the assets.
Step 2: Determine the Nature of the Obligation. An unsecured debt doesn’t give you a lot of leverage. But if the debt is secured, oftentimes those business assets are the sole source of income for the borrower and sometimes the guarantors. If you start making noise about attaching business assets or getting a receiver appointed, it can serve as effective leverage in negotiating.
Step 3: Determine Whether Default Has Occurred. A default notice is generally required, but even if it is not, a default notice can be helpful as it may be the first notification and may lead to the debtor making arrangements to pay the obligation. Or, a default notice may elicit a response from the debtor containing possible defenses or counterclaims. Having this information will allow you to either avoid bringing litigation, if the defenses are valid, or to prepare responses to the defenses or counterclaims before you bring suit.
Step 4: Bring Suit. If your default notice does not result in payment, the next step would be to institute a lawsuit. However, filing a suit is a last resort because the moment you file suit you are turning your decision on this credit over to a third party to adjudicate and determine rights. It is more time consuming, more costly, and should only be considered when you have not come up with a better business decision. Also, filing suit usually ends up with a less desirable conclusion than a business workout.
Step 5: Postjudgment Collection. As soon as you obtain a judgment, you should attach property; and don’t forget to check out social media to see what information this borrower or guarantor is posting. There is plenty of room for error, and a borrower or a guarantor can put information out that they don’t realize is tipping a creditor off that they have more assets than they are letting on.
Finally, remember your client likely is not the only one seeking money from a creditor. Try to stay ahead of the creditor pack in terms of reaching the finish line.
Collecting a debt can be one of the simplest activities an attorney undertakes or one of the most complicated. Familiarize yourself thoroughly with the applicable law, make certain your client clearly understands the risk of investing time and money into an activity that may not result in any benefit, and don’t be afraid to reach out to more experienced attorneys.
Read Carlson and McNeilly’s “How to Collect a Debt” in the “101” Column of the May 2013 Wisconsin Lawyer magazine.