Wisconsin Lawyer: 101: How to Collect a Debt:

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  • Wisconsin Lawyer

    101: How to Collect a Debt

    Kurt M. Carlson & James W. McNeilly Jr.

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    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.

    Fishing netCollecting a debt through legal means is a fairly straightforward process for experienced counsel, but the success of the endeavor depends on numerous variables.

    Step One: Gather the Necessary Information

    It is important for counsel to carefully review the information in the creditor’s possession to assess the best avenues and points of leverage to pursue. To properly evaluate the relative strengths and weaknesses of your client’s claims and any defenses to the claims, you must know all the information about the claim. Therefore, ask your client for copies of all documents relating to the obligation, including, if possible, communications between the debtor and the creditor, internal reporting, title reports, and recorded or filed documents such as Uniform Commercial Code financial statement filings.1

    Communications are important; for example, occasionally a debtor makes admissions that will prove helpful in countering defenses or counterclaims if litigation becomes necessary. Additionally, you may discover that your client has made admissions that might negatively affect the claim or even constitute grounds for a debtor’s claim against the creditor. In most cases, a successful collection begins and ends with having an overabundance of information.

    Kurt M. Carlsoncom kcarlson carlsondash Kurt M. Carlson, Thomas M. Cooley 1990, is a managing member of Carlson Dash LLC, a full-service law firm with offices in Chicago and in Pleasant Prairie, Wis., and concentrates his practice on bankruptcy, insolvency, and creditor-debtor matters.

    James W. McNeilly Jr.com jmcneilly carlsondash James W. McNeilly Jr., U.W. 1981, is with Carlson Dash LLC and focuses on bankruptcy, creditor-debtor, and real estate matters.

    Step Two: Determine the Nature of the Obligation

    Is the debt secured by personal property, real estate, or business assets? Collecting on a secured debt presents additional means of leverage, because many debtors desire to keep their property. Collecting on an unsecured debt requires heightened creativity to achieve good results, mostly because there is little incentive for the debtor to pay an unsecured obligation.

    You also must determine whether any special statutes or regulations apply. For example, laws such as Wis. Stat. chapter 402, regarding sales between merchants, Wis. Stat. chapter 799, regarding mechanics’ liens, and the Federal Perishable Agricultural Commodities Act (PACA),2 among others, may affect the terms of the debt and dictate the collection procedures. If the statutes or regulations are violated, the claim might be invalidated or be treated as an unsecured, nonpriority3 claim. The converse is also true – if you follow the legal requirements, the claim might be treated as secured or as a priority unsecured claim.

    Is the debt consumer or nonconsumer? Because of the numerous state and federal laws and regulations governing consumer debts and their collection, there is a huge difference between collecting a consumer debt as opposed to a nonconsumer debt.

    Step Three: Determine Whether Default Has Occurred


    webXtra: In this video, Kurt Carlson and Jim McNeilly explain the legal process for collecting a debt.

    Once you have reviewed all the documents and identified the applicable laws, determine whether the debtor has defaulted. If the terms of the obligation require a default notice, ensure that it has been properly sent (that is, in accordance with the provisions of the documents and any applicable law).

    Even if no default notice is required, there are good reasons to send one. First, receiving a default notice might lead to the debtor making arrangements to pay the obligation. Second, such a notice will sometimes 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 prepare responses to the defenses or counterclaims before you bring suit.

    Step Four: Bring Suit

    If the default notice does not lead to payment of the obligation, the next step may be to institute a lawsuit. However, be aware that litigation is not always the best course of action.

    First, before you file a lawsuit, make sure to check whether the debtor has filed for bankruptcy, because you may incur significant penalties if you violate an automatic stay (which is instituted upon the filing of virtually all bankruptcies).4 (And continue to check periodically for a bankruptcy filing, if you do bring suit.) Second, ensure that you are bringing suit in the correct venue. Third, make certain to comply with any statutory and case law requirements for pleading. (For example, the Wisconsin Consumer Act requires attachment to the complaint of copies of relevant documents and payment history.5) Finally, make sure to include all meritorious claims and causes of action.

    Step Five: Postjudgment Collection

    Immediately after obtaining a judgment, docket it. Once docketed, the judgment becomes a lien on all real property owned by the judgment debtor in the county in which the judgment is docketed.6 If there is a possibility the debtor owns property in other counties, docket transcripts of the judgment in those counties. If there is a possibility the debtor owns real property in other states, obtain the necessary documentation to docket the judgment in those states.

    Familiarize yourself with both the Wisconsin exemptions and the most common Wisconsin collection methods, such as garnishment and execution.7 Often, the most productive step after docketing the judgment is to take a supplemental proceeding, pursuant to Wis. Stat. chapter 816. At a supplemental proceeding, you are entitled to ask questions about the debtor’s income and assets. Note that in small claims actions, the debtor is required to send the creditor a form financial statement within 15 days after entry of judgment, which may allow you to avoid taking a supplementary proceeding.8 Also consider other remedies, such as a fraudulent conveyance action,9 an involuntary bankruptcy,10 a chapter 128 proceeding,11 and appointment of a receiver12 (particularly when the debtor is a corporation, partnership, or limited liability company).


    Collecting a debt can be one of the easiest activities an attorney undertakes or one of the most complicated. Familiarize yourself thoroughly with the applicable laws, make certain your client clearly understands the risk of investing time and money in an activity that might not result in any benefit, and do not be afraid to reach out to more experienced attorneys.


    1 Wis. Stat. § 409.310.

    2 7 U.S.C. § 499(a)-(s).

    3 Unsecured means the debt is not secured by a lien on property. Unsecured obligations are often prioritized, with certain debts, such as taxes, being paid before others. An unsecured nonpriority debt is usually the last debt to be paid in a liquidation proceeding such as a bankruptcy.

    4 The easiest way to check for bankruptcy filings is through PACER: www.pacer.gov/. PACER is an online service that allows users to obtain case and docket information from federal appellate, district, and bankruptcy courts.

    5 Wis. Stat. § 425.109(d), (h).

    6 Wis. Stat. § 806.15(1).

    7 Wis. Stat. §§ 812.01-44; Wis. Stat. §§ 815.01-64.

    8 Wis. Stat. § 799.26(1).

    9 Wis. Stat. §§ 242.01-11.

    10 11 U.S.C. § 303.

    11 Wis. Stat. §§ 128.01-128.20; Wis. Stat. § 128.25.

    12 Wis. Stat. §§ 128.08, 813.16.

    13 Thomas J. Watson, The Art of Client Selection (Managing Risk), 81 Wis. Law. 19 (March 2008).

    14 SCR 20:1.15, 20:1.16.

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