The Civilized Way To Collect Debt
The Civilized Way To Collect Debt Collecting past-due balances
is one of the most agonizing tasks in business. In many large
companies, the accounts-receivable department or credit manager
handles collections. If your company is small, you might handle
collections yourself. But whether your company is big or small or
in between, you'll want to collect debts diplomatically and
tactfully to preserve your good reputation.
Guidelines
The Fair Debt Collection Practices Act (FDCPA), administered by
the FTC, regulates third-party collection activities throughout the
country - including collection agencies and law firms that provide
collection services. Although the FDCPA doesn't apply to in-house
collections, the act provides a set of prudent guidelines. Here are
the most important FDCPA-established rules:
- Contact debtors by mail (but not by postcard), telegram, e-mail
or fax at any time, but by phone only between 8:00 a.m. and 9:00
p.m.
- Contact debtors at a reasonable place - such as at home -
unless they authorize you to call at work.
- Disclose your true identity. Don't misrepresent yourself as an
agent of the government or a credit bureau. Never use a false name.
In fact, don't lie in any respect.
- Don't threaten debtors with jail if they don't pay. Don't imply
that they have committed a crime. But if a debtor's check bounces,
you may contact authorities because that may be a criminal offense
under state law.
- Don't reveal information about a debt to anyone else - except a
debtor's attorney. If a debtor has moved, you may contact third
parties to "trace" the debtor's new address and phone number, but
don't discuss the debt itself with outsiders.
- Avoid profanity, threats of violence or other verbal
abuse.
- Don't threaten to take further legal action - such as filing a
lawsuit - unless you intend to and it is legal to do so.
- If a debtor owes you for more than one transaction, and sends
you a payment for a particular transaction, apply the payment to
that transaction.
Other rules apply, and we can advise you on them.
Judgment and Enforcement
If your collection efforts are unsuccessful, you'll need to
consider filing a lawsuit in state court. If a debtor lives in or
operates a business in another state, you may have to file in that
state. State law typically allows you to file suit either where the
defendant resides or where the transactions arose. In a legal
action, sometimes the easiest part is convincing a judge that a
debtor owes you money. Often more difficult is actually collecting
a debt when a court rules in your favor. If a debtor still fails to
pay after being ordered by a court, we can ask the court for
further relief, including:
Information subpoenas and discovery
orders that require debtors to disclose their
identities, location and status of bank accounts, personal
property, employers, income and other assets.
Attachment that compels law
enforcement officers to seize and sell a debtor's property or other
assets to satisfy a debt.
Replevin that compels law enforcement
officers to recover and return to you goods you sold to a debtor
that the debtor hasn't paid you for.
Distraint that allows a landlord to
seize property - such as furniture or appliances - of tenants who
haven't paid rent.
Levy that compels a police officer to
take possession of and hold a debtor's property until a debt is
paid.
Garnishment that requires a debtor's
employer to pay salary - or a portion of it - to you to satisfy a
debt.
Receivership that designates a third
party to sell a debtor's seized property to satisfy a debt.
Lien that attaches an ownership
interest in a debtor's property in your behalf. If the debtor sells
that property, you can share in the proceeds. But beware: Filing
erroneous liens can lead to civil or criminal sanctions against
you.
These are often complex legal proceedings and require
professional legal assistance.
State by State
Each state has statutes governing the relationship between
creditors and debtors. Become familiar with yours, as well as the
FDCPA (online at www.ftc.gov), before you take aggressive
collection action. Aside from laws and rules concerning collection
activities, you should proceed professionally to preserve your
reputation and business relationships. And call us for
information.
Sidebar:
Dealing With an Insolvent Debtor Trying to collect a debt from a
thriving business can be difficult enough. But financially
distressed or insolvent debtors present a completely different ball
game. In a slow economy, you may encounter more of these situations
than usual. If you believe that a debtor is in financial difficulty
- and you think the business is likely to recover - you'll probably
want to preserve the business relationship. In that case, you may
wish to negotiate more liberal credit terms, including giving you a
security interest in the debtor's assets. You'll have to decide,
based on the risks involved, whether to continue shipping goods or
providing services to the debtor during this period.
If a distressed company files for bankruptcy, you'll have to get
in line with other unsecured creditors to try to collect what
you're owed. Exercising lien rights - if you have them - can
convert your status from unsecured creditor to secured creditor.
You may want to continue doing business with a company in Chapter
11 reorganization under new credit terms - such as cash on delivery
- depending on prospects for a long-term relationship with the
company. But keep in mind that most Chapter 11 bankruptcies fail.
Please consult us for advice on dealing with debtors in bankruptcy
proceedings.