Debt collection really begins when you first sign on your client or customer! At the beginning of the relationship, you aren't anticipating collection problems, of course, but you do know that a certain percentage of customers go bad and turn into collection problems.
So, why not protect yourself right from the beginning, starting with a credit application (you may not call it that, but you should have a form that new clients/patients/customers fill out).
What should it contain, well consider these items:
Consider accumulating the information in some way so that you have the following data on each of your clients:
1. The correct and full legal name of the applicant, the physical address (not merely a post office box), and the position of the individual who is applying (treasurer, president, etc.). To make sure that the customer clearly specifies the type of business entity, provide check-off boxes for proprietorship is also a good idea.
2. Any trade names the company operates under. For example, if the Brake Shop is a division of Win Management Corporation, the application should require that both names be listed along with the relationship between the two.
3. Names, addresses, and telephone numbers of any authorized purchasers at any branches.
4. Names, addresses, telephone numbers, and social security numbers of partners and officers.
5. Name, address, and telephone number of the bank where the company maintains its accounts.
6. Names, addresses, and telephone numbers of several trade references.
7. Type of product(s) sold.
8. Year the business was formed.
9. A statement similar to the following: “A signature on this document provides permission to pull a credit bureau report on any individual who may be liable under this agreement (such as a personal guarantor, proprietor, general partner, or similar person).”
10. Financial statements.
11. Amount of credit requested.
12. Anticipated monthly purchases.
13. A statement that the customer agrees to pay interest at a specific percentage rate, or the maximum legal rate of interest from the date of the last invoice. The interest charges are to be construed as a time-price differential and therefore not considered interest.
14. A personal guaranty, which should be obtained on all credit applications. Obviously, the signing of a personal guaranty is optional and requires a separate signature from the signature on the credit application itself. The language of the personal guaranty should be somewhat similar to the following:
Should the account become delinquent, the undersigned personally guarantees payment of the account balance to Creditor Company plus the interest and other charges referred to in this application, including reasonable attorney fees. This is a guaranty of payment. The guaranty is personal in nature and the undersigned acknowledges personal liability and consents to having a credit bureau report ordered by the creditor.
Steve Harms
Wednesday, April 17, 2013
Monday, April 1, 2013
Service of Summons and Complaint to collect money
A collection law suit (or any suit for that matter) is started by filing a Complaint, which lets the debtor (defendant) know--in a matter of numbered paragraphs--what you are suing for. That is, it explains the contract or account, and then the balance currently owed plus any interest/costs.
The suit also includes a cover sheet referred to as a Summons, which is form language required by the court explaining to the debtor the case number, how many days to answer the suit, the fact that this is a suit, and some other details.
BOTH the Summons and the Complaint must be served on the debtor/defendant, within the time allowed before it expires (the Summons may have the expiration date right on it).
If the defendant is an individual, as opposed to a business, personal service is required. This generally means the debtor (at least in Michigan, and the practice does vary a bit from state to state, country to country) is handed the document. However, in Michigan at least, this does not require a physical touching of the Summons and Complaint. It does require three things: Inform the debtor of the action; offer them to the debtor; and leave them in the debtor's physical control.
So, what does the process server do if the debtor takes off running into his house and slams the door (happens often, or some variation of this)? Well, the process server shouts that he is delivering a suit, he offers to hand the papers (remember...BOTH the Summons and the Complaint) to the debtor, then he leaves them right outside the door, or in the door handle, if the debtor refuses to open the door he just ran into. That is sufficient. In one case, the papers made it half way into the door as it was being slammed shut, the debtor grabbed them out of the door and threw them back at the process server. Still good service according to the Michigan Court of Appeals. Barclay v Crown Building is one good example.
Michigan also allows service on an individual by certified mail if the delivery is restricted to a specifically identified person, and if that person signs for it and the receipt is produced.
There are also a number of ways to obtain substituted service, but that requires a petition or motion be filed with the court, and court permission to so serve the papers...effective if direct service just isn't going to happen. Frequently the plaintiff who started the suit will also petition the court for an extended Summons if the process server runs out of time, usually requiring an affidavit from the process server and other address verification such as a postal trace from the Post Office.
What may seem easy, sometimes isn't. Completing good service of a law suit is a prime example of that!
The suit also includes a cover sheet referred to as a Summons, which is form language required by the court explaining to the debtor the case number, how many days to answer the suit, the fact that this is a suit, and some other details.
BOTH the Summons and the Complaint must be served on the debtor/defendant, within the time allowed before it expires (the Summons may have the expiration date right on it).
If the defendant is an individual, as opposed to a business, personal service is required. This generally means the debtor (at least in Michigan, and the practice does vary a bit from state to state, country to country) is handed the document. However, in Michigan at least, this does not require a physical touching of the Summons and Complaint. It does require three things: Inform the debtor of the action; offer them to the debtor; and leave them in the debtor's physical control.
So, what does the process server do if the debtor takes off running into his house and slams the door (happens often, or some variation of this)? Well, the process server shouts that he is delivering a suit, he offers to hand the papers (remember...BOTH the Summons and the Complaint) to the debtor, then he leaves them right outside the door, or in the door handle, if the debtor refuses to open the door he just ran into. That is sufficient. In one case, the papers made it half way into the door as it was being slammed shut, the debtor grabbed them out of the door and threw them back at the process server. Still good service according to the Michigan Court of Appeals. Barclay v Crown Building is one good example.
Michigan also allows service on an individual by certified mail if the delivery is restricted to a specifically identified person, and if that person signs for it and the receipt is produced.
There are also a number of ways to obtain substituted service, but that requires a petition or motion be filed with the court, and court permission to so serve the papers...effective if direct service just isn't going to happen. Frequently the plaintiff who started the suit will also petition the court for an extended Summons if the process server runs out of time, usually requiring an affidavit from the process server and other address verification such as a postal trace from the Post Office.
What may seem easy, sometimes isn't. Completing good service of a law suit is a prime example of that!
Wednesday, March 6, 2013
FDCPA update: Mortgage foreclosure work is debt collection
The United States Court of Appeals for the Sixth Circuit ruled in Glazer v Chase Home Finance (decided January 2013) that mortgage foreclosure work is debt collection under the Fair Debt Collection Practices Act. Lawyers who meet the definition of being "debt collectors" must therefore comply with the FDCPA when engaged in mortgage foreclosure as per the facts in the Glazer case.
This may come as a shock to some as this type of work is frequently not considered to be debt collection. The logic the Sixth Circuit used was that the foreclosure is basically a means to an end, and the end is to collect the amount owed on the note that accompanied the mortgage. Assuming the loan from the note secured by the property foreclosed upon was used for personal, family or household use, the logic follows that the proceeds of the foreclosure action are being used to pay a consumer debt which is the heart and sole of the FDCPA...this case, of course from the context, involved a consumer debt or, as the court called it: a home loan to a consumer.
This may come as a shock to some as this type of work is frequently not considered to be debt collection. The logic the Sixth Circuit used was that the foreclosure is basically a means to an end, and the end is to collect the amount owed on the note that accompanied the mortgage. Assuming the loan from the note secured by the property foreclosed upon was used for personal, family or household use, the logic follows that the proceeds of the foreclosure action are being used to pay a consumer debt which is the heart and sole of the FDCPA...this case, of course from the context, involved a consumer debt or, as the court called it: a home loan to a consumer.
A few comments on Michigan Collection practices
Just a few quick comments on Michigan collections (I usually try to make comments in a generic fashion, applicable to most of our states) as follows:
1. MCL 600.2559 has been amended. This has to do with court officer fees for service of process and related service charges. For example, personal service of a suit is now $23.00 plus mileage; and service of a garnishment is $20.00 plus mileage. Writs to seize assets: 7% of the first $8000 and 3% of amounts over that are owed to the officer; plus posting fees and other expenses (see .2559 (1). The amended section calls for further fee increases each year in 2014 and 2015 as well. These fee charges are all reasonable and necessary, but they are something attorneys working in enforcement of judgments should be aware of.
2. Cool apps are available. Check out MICHIGAN COURTS in the App Store for I-phones, I-pads and I Pod touch for powerful tools including State and Federal court rules, access to PACER and the like. Try:
1. MCL 600.2559 has been amended. This has to do with court officer fees for service of process and related service charges. For example, personal service of a suit is now $23.00 plus mileage; and service of a garnishment is $20.00 plus mileage. Writs to seize assets: 7% of the first $8000 and 3% of amounts over that are owed to the officer; plus posting fees and other expenses (see .2559 (1). The amended section calls for further fee increases each year in 2014 and 2015 as well. These fee charges are all reasonable and necessary, but they are something attorneys working in enforcement of judgments should be aware of.
2. Cool apps are available. Check out MICHIGAN COURTS in the App Store for I-phones, I-pads and I Pod touch for powerful tools including State and Federal court rules, access to PACER and the like. Try:
http://www.michigan.gov/documents/cis_ofis_ceilings_24956_7.pdf
Friday, March 1, 2013
FDCPA defendant may recover costs against an unsuccessful plaintiff
Good news for collectors who are sued unsuccessfully by a plaintiff for violating the Fair Debt Collection Practices Act (FDCPA): the United States Supreme Court just ruled that the defendant in the case may recover costs against the unsuccessful plaintiff.
The plaintiff in the case before the Supreme Court argued that costs could only be assessed against a plaintiff if the action was brought in "bad faith" as per Section 1692 k (a)(3) of the FDCPA.
The Supreme Court said the bad faith requirement does NOT prevent a court from awarding costs against a plaintiff who brings a FDCPA claim, even if in good faith, if the suit is unsuccessful. A portion of the rather long opinion is attached here:
Petitioner Marx filed suit, alleging that General Revenue Corporation (GRC) violated the Fair Debt Collection Practices Act (FDCPA) by harassing and falsely threatening her in order to collect on a debt.The District Court ruled against Marx and awarded GRC costs pursuant to Federal Rule of Civil Procedure (FRCP) 54(d)(1), which gives district courts discretion to award costs to prevailing defendants“[u]nless a federal statute . . . provides otherwise.” Marx sought to vacate the award, arguing that the court’s discretion under Rule54(d)(1) was displaced by 15 U. S. C. §1692k(a)(3), which provides, in pertinent part, that “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.” The District Court rejected Marx’s argument. The Tenth Circuit affirmed, in pertinent part, agreeing that costs are allowed under the Rule and concluding that nothing in the statute’s text, history, or purpose indicates that it was meant to displace the Rule.
Held: Section §1692k(a)(3) is not contrary to, and, thus, does not displace a district court’s discretion to award costs under, Rule 54(d)(1).Pp. 4–16.
(a) Rule 54(d)(1) gives courts discretion to award costs to prevailing parties, but this discretion can be displaced by a federal statute or FRCP that “provides otherwise,” i.e., is “contrary” to Rule 54(d)(1).Contrary to the argument of Marx and the United States, as amicus, language of the original 1937 version of the Rule does not suggest that any “express provision” for costs should displace Rule 54(d
....Congress did not intend §1692k(a)(3) to foreclose courts from awarding costs under the Rule.
The plaintiff in the case before the Supreme Court argued that costs could only be assessed against a plaintiff if the action was brought in "bad faith" as per Section 1692 k (a)(3) of the FDCPA.
The Supreme Court said the bad faith requirement does NOT prevent a court from awarding costs against a plaintiff who brings a FDCPA claim, even if in good faith, if the suit is unsuccessful. A portion of the rather long opinion is attached here:
Petitioner Marx filed suit, alleging that General Revenue Corporation (GRC) violated the Fair Debt Collection Practices Act (FDCPA) by harassing and falsely threatening her in order to collect on a debt.The District Court ruled against Marx and awarded GRC costs pursuant to Federal Rule of Civil Procedure (FRCP) 54(d)(1), which gives district courts discretion to award costs to prevailing defendants“[u]nless a federal statute . . . provides otherwise.” Marx sought to vacate the award, arguing that the court’s discretion under Rule54(d)(1) was displaced by 15 U. S. C. §1692k(a)(3), which provides, in pertinent part, that “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.” The District Court rejected Marx’s argument. The Tenth Circuit affirmed, in pertinent part, agreeing that costs are allowed under the Rule and concluding that nothing in the statute’s text, history, or purpose indicates that it was meant to displace the Rule.
Held: Section §1692k(a)(3) is not contrary to, and, thus, does not displace a district court’s discretion to award costs under, Rule 54(d)(1).Pp. 4–16.
(a) Rule 54(d)(1) gives courts discretion to award costs to prevailing parties, but this discretion can be displaced by a federal statute or FRCP that “provides otherwise,” i.e., is “contrary” to Rule 54(d)(1).Contrary to the argument of Marx and the United States, as amicus, language of the original 1937 version of the Rule does not suggest that any “express provision” for costs should displace Rule 54(d
....Congress did not intend §1692k(a)(3) to foreclose courts from awarding costs under the Rule.
Tuesday, February 26, 2013
Collection Seminar: Thursday June 6, 2013
UPCOMING COLLECTION SEMINAR
will be recorded and available by CD
will be recorded and available by CD
We are pleased to announce a full day of discussion on collecting money from your delinquent accounts.
This seminar is geared for attorneys and is based upon written materials submitted by the speakers and my book, Handling the Collection Case in Michigan.
The seminar, organized by the Michigan Institute for Continuing Legal Education, is a detailed look at many of the key collection topics, as per the day's agenda, printed below, and will be held at the beautiful INN AT ST. JOHN'S in Plymouth, MI on Thursday, June 6, 2013 (and available on CD thereafter).
Topics for the day:
Creditors’ Rights 2013
(subject to any changes in topics or speakers)
Thursday, June 6, 2013
The Inn at St. John’s, Plymouth
Course Schedule
Moderator
Steven A. Harms
Muller Muller Richmond Harms & Myers PC
Birmingham
Morning Session:
9:00 a.m. to 12:00 p.m.
The collection case from beginning to end, a complete discussion on the topics involved from negotiation before suit, right up through post judgment collection.
Steven A. Harms and other speakers
Afternoon Session:
1:30 p.m. – 5:30 p.m.
1:30 p.m. – 2:00 p.m. How to Use a Garnishment Effectively
• Practical tips for using garnishments effectively
• The new 180-day rule
• Using garnishment in insurance claims (e.g. fire)
• Thinking beyond banks and wages- garnishing accounts receivable, lottery winnings, state of Michigan income tax refunds, insurance proceeds, rent income (rent payments), and more
• Exceptions to garnishments: pension plans, child support, 401k, IRAs, etc.
• Priority writs that affect your garnishment
Daniel E. Best
Weltman Weinberg & Reis Co LPA
Troy
2:00 p.m. – 3:00 p.m. The Nuts and Bolts of Asset Seizures (Execution Writs)
• Process overview- how to get an order to seize property
• Elements of an execution writ (and what forms to use)
• Teamwork: court officer and attorney collaboration in asset seizures
• The attorney’s role in information gathering for effective asset seizures
• Court officer fees
Steven A. Harms
Muller Muller Richmond Harms & Myers PC
Birmingham
Jeff Kirkpatrick
Court Services Agency
Jackson
3:00 p.m. – 3:15 p.m. Questions and Answers
3:15 p.m. – 3:30 p.m. Networking Break
3:30 p.m. – 4:15 p.m. Tips, Tricks, Traps and Trouble: Collecting Money and Avoiding Consumer Claims
• Caselaw update: Fair Debt Collection Practices Act, Michigan Collection Practices Act, Fair Credit Reporting, and more
• Latest filing trends and fact patterns
• Best practices for collection law firms
Charity A. Olson
Olson Law Group
Ann Arbor
4:15 p.m. – 4:45 p.m. A Court’s Perspective on Attorney Fees and Costs
• New cases on attorney fees and costs
• Attorney fees as part of contract
• What "reasonable attorney fees" means
• Is a contingency fee a "reasonable attorney fee"?
• Chargeable costs
Hon. Dennis C. Drury
52nd District Court
Troy
4:45 p.m. – 5:15 p.m. Skip Tracing: Uncovering Debtors and Hidden Assets
Using subpoenas, credit reports, Internet resources, and public records together to locate assets
Skip tracing practice tips and advice
A practical approach to working with debtors
Commercial versus consumer skip tracing; constraints of FDCPA
Real property skip tracing
Skip tracing check sheet and its importance when conducting a creditor’s examination
5:15 p.m. – 5:30 p.m. Questions and Answers
Adjourn
Friday, February 22, 2013
Being a witness at a collection trial: Common concerns
Rarely do collection cases go to trial. That's a good thing because providing a witness, or being a witness is an inconvenience at best, and a real strain at worst (where the case is heavily disputed). This discussion covers some of the common questions asked by people who may have to testify at a collection trial.
How do I prepare to be a witness in a collection trial? Preparation of a witness doesn’t have to be complicated. Let your witness know the facts and your theory of the case, and what you hope to prove in court. You should also walk the witness through what happens in court — that she or he be called to the witness stand, sworn in, questioned by your lawyer, then cross-examined by the other side.
Sometimes there will be redirect, asking some follow-up questions based on the cross-examination, and then the other side will re-cross. Then, in all likelihood, the witness will be excused with the instruction not to talk to other witnesses about the case before the litigation concludes.
The witness should always speak freely, based on her own knowledge of the facts and circumstances, without a great deal of influence from anyone else. You should never give your witness a prepared speech or words to say. Most lawyers know funny stories about witnesses who were caught reciting memorized statements in court, or reading speeches they concealed in their clothing. But those stories aren’t funny at all to the party who lost the case when it became clear to the jury that the witness was reading or reciting somebody else’s words. It’s even OK if they have to answer: “I don’t know” to some questions...that’s normal.
REMEMBER: Witnesses must be able to testify from their own recollection of what happened. That’s true even if the witness isn’t going to say exactly what you want to hear.
What if no one at our company has any personal knowledge of the collection issue? When no one has personal knowledge, do the best you can to create a solid paper trail: a clear set of records and documents for your witness, so it appears that your company keeps clear and accurate records of transactions and events. With good preparation, a disorganized company can come across as highly organized. With poor preparation, even a scrupulous company can look like it doesn’t even know how to use a paper clip.
Sometimes you have to concede certain factual claims or issues because you don’t have a witness to testify in response to the defendant’s claims. If you discover that you have to concede is-sues that are very important to your case, it’s time to negotiate and to settle your case for the best amount you can get. The facts and circumstances are what they are, and it’s not always easy to make lemons into lemonade.
Do we always have to physically appear at the trial? Sometimes when a witness can’t be physically present for trial, you can make arrangements to take testimony in advance, or to have him testify electronically. Under exceptional circumstances, it may be possible for a witness to testify at a hearing by remote communication such as by telephone or through videoconferencing.
Courts favor testimony that’s given live, in court. Other methods of presenting testimony are the exceptions to the standard rules, and may be available under only limited circumstances. Start with the expectation that the judge will insist that the witness appear in person. Don’t anticipate that you can present testimony by any other means unless you first confirm it with the court
Can my deposition be used? Sometimes a deposition or other form of sworn testimony can be preserved so that a witness doesn’t have to be physically in the courtroom or dispute resolution hearing to be heard. Generally speaking, you must make arrangements beforehand, based on the unavailability of the witness for a hearing, and give all parties the opportunity to participate in the examination and cross-examination of the witness.
How do I prepare to be a witness in a collection trial? Preparation of a witness doesn’t have to be complicated. Let your witness know the facts and your theory of the case, and what you hope to prove in court. You should also walk the witness through what happens in court — that she or he be called to the witness stand, sworn in, questioned by your lawyer, then cross-examined by the other side.
Sometimes there will be redirect, asking some follow-up questions based on the cross-examination, and then the other side will re-cross. Then, in all likelihood, the witness will be excused with the instruction not to talk to other witnesses about the case before the litigation concludes.
The witness should always speak freely, based on her own knowledge of the facts and circumstances, without a great deal of influence from anyone else. You should never give your witness a prepared speech or words to say. Most lawyers know funny stories about witnesses who were caught reciting memorized statements in court, or reading speeches they concealed in their clothing. But those stories aren’t funny at all to the party who lost the case when it became clear to the jury that the witness was reading or reciting somebody else’s words. It’s even OK if they have to answer: “I don’t know” to some questions...that’s normal.
REMEMBER: Witnesses must be able to testify from their own recollection of what happened. That’s true even if the witness isn’t going to say exactly what you want to hear.
What if no one at our company has any personal knowledge of the collection issue? When no one has personal knowledge, do the best you can to create a solid paper trail: a clear set of records and documents for your witness, so it appears that your company keeps clear and accurate records of transactions and events. With good preparation, a disorganized company can come across as highly organized. With poor preparation, even a scrupulous company can look like it doesn’t even know how to use a paper clip.
Sometimes you have to concede certain factual claims or issues because you don’t have a witness to testify in response to the defendant’s claims. If you discover that you have to concede is-sues that are very important to your case, it’s time to negotiate and to settle your case for the best amount you can get. The facts and circumstances are what they are, and it’s not always easy to make lemons into lemonade.
Do we always have to physically appear at the trial? Sometimes when a witness can’t be physically present for trial, you can make arrangements to take testimony in advance, or to have him testify electronically. Under exceptional circumstances, it may be possible for a witness to testify at a hearing by remote communication such as by telephone or through videoconferencing.
Courts favor testimony that’s given live, in court. Other methods of presenting testimony are the exceptions to the standard rules, and may be available under only limited circumstances. Start with the expectation that the judge will insist that the witness appear in person. Don’t anticipate that you can present testimony by any other means unless you first confirm it with the court
Can my deposition be used? Sometimes a deposition or other form of sworn testimony can be preserved so that a witness doesn’t have to be physically in the courtroom or dispute resolution hearing to be heard. Generally speaking, you must make arrangements beforehand, based on the unavailability of the witness for a hearing, and give all parties the opportunity to participate in the examination and cross-examination of the witness.
Wednesday, February 20, 2013
A personal comment.... (with apologies to readers who expect substance, not fluff, so, after this, I'm back to substance)
Today I break my cardinal rule of making this blog all about the facts and not going on and on about personal stuff. I was overwhelmed with an award I received in Miami last month at the International Association of Commercial Collectors (IACC), and here is the write up in Scope, the official newsletter of IACC (Feb 2013, copyright held by IACC).
The IACC Leadership and Distinguished Service Award recognizes an IACC member individual who has given his or her time and energy to better the IACC and who has conducted his or her professional and personal life for the betterment of the commercial collection industry. This year we recognize and honor an individual who exemplifies these qualities. Since becoming a member in 1988, Steve Harms, has been very active from the start.
Over the past 25 years Harms has been instrumental in shaping, developing and perfecting the IACC’s training and educational programs. He has conducted numerous face-to-face seminars, presented many sessions at annual meetings and has taught well over a dozen teleseminars; and that is only for IACC. Harms also shares his knowledge by teaching as an adjunct professor at a top business college in Michigan and speaking for many associations across the country. And, if that’s not enough, he has also authored or co-authored (or contributing author) no less than eight books on credit/collections/business.
Beyond his dedication to improving IACC’s educational offerings, Harms has also given his time by serving on the board of directors of IACC for three terms, he has served on many committees over the years and continues to serve today.
Thursday, February 7, 2013
Using the appropriate legal theories
After you figure out who you’re going to sue, you need to spend a bit of time thinking about your causes of action — the legal theories you’re going to present in your complaint for why the debtor owes you money.
Contract theories
The most common legal theories are based on principles of contract. Possible causes of action include:
* Breach of contract: That is, you had a contract with the defendant, you fulfilled your side, she didn’t fulfill her obligations, and she owes you money.
* Complaint on an account stated: In many states, you can file a special cause of action based on your final statement of account. You support your complaint with a copy of the statement of account and an affidavit attesting that the statement of account is accurate. This shifts the burden of proof to the defendant, and if the defendant doesn’t file a proper response disputing the debt, the court will issue a judgment in your favor.
Fraud
In simple terms, a claim of fraud alleges that the debtor made a false claim or representation to you, knowing that their claim was false and that you were acting in reliance upon that statement, and that as a result of your reliance you suffered an injury. Fraud involves more than a claim that the debtor said he was going to pay you but didn’t.
For example, fraud may be alleged where a customer presents you with false bank statements, or a fraudulent letter of credit, making you believe that the customer is financially strong when in fact he has no resources and no intention of paying you, and he gets you to ship goods to him based on his false representations.
Suing owners of corporations
Normally, the owners of an incorporated business are shielded from personal liability for corporate debts. However, corporate officers may be held personally liable to pay you under a number of different theories( but never on a contingency fee, well, almost never), including:
* Undercapitalization: Not enough money was invested at the start to adequately finance the business, or the principals withdrew too much money from the business, resulting in its financial problems.
* Commingling personal and corporate assets: No clear line exists between the personal assets of the owner and the assets of the business. For example, funds belonging to the business may be instead used for personal purposes, such as paying the college tuition of the owner’s children. Or the owner of a small corporation treats the corporate bank account as if it’s his private checking account, keeping his own money in the account and using it to pay household bills.
* Piercing the corporate veil: Seeking to hold corporate officers personally liable as the result of extraordinary misconduct on the part of the officers. For example, you may allege:
* The corporate entity is a mere instrumentality of another entity or individual. The corporation isn’t treated as a separate entity, following the required protocols (holding board meetings, keeping corporate records, and so on), but is instead an alter ego for its principals, who want to avoid personal responsibility for their questionable conduct.
* The corporate entity was used to commit a fraud or a wrong. The primary purpose for the corporation’s creation was to further a wrongful act.
* The corporate entity created an unjust loss or injury to your company. Courts have had difficulty articulating the circumstances under which unjust or inequitable conduct can justify piercing the corporate veil. Suffice it to say, it’s extremely rare.
Most states don’t have a clear standard governing when a corporate entity may be disregarded and the officers sued personally. However, no state makes it easy to pierce the corporate veil.
It’s rare to be able to successfully allege undercapitalization or commingling, as in most cases you don’t have access to any information that would reveal undercapitalization or commingling of funds. Similarly, it’s very unusual to successfully pierce the corporate veil.
Foreclosure and recovery of property
If you’re foreclosing on a lien or mortgage, you may be able to choose between judicial and nonjudicial foreclosure. If your state’s laws require judicial foreclosure, or you believe you may benefit from judicial foreclosure, you file a foreclosure lawsuit. The procedures for filing a foreclosure suit are different in each state. Foreclosure lawsuits can be tricky, so consider getting help from a lawyer.
You may initiate litigation to recover items of property that are in the possession of the debtor. For example, if an invoice wasn’t paid, you may want to recover goods you have shipped to the debtor. Actions to recover physical property are sometimes called replevin actions when based on statute, or detinue actions when based on common law principles.
Bad check actions
If your debtor has paid you with a bad check, you probably have a statutory claim for a civil penalty in addition to recovering the face value of the check. Some states also permit you to recover attorney fees.
Contract theories
The most common legal theories are based on principles of contract. Possible causes of action include:
* Breach of contract: That is, you had a contract with the defendant, you fulfilled your side, she didn’t fulfill her obligations, and she owes you money.
* Complaint on an account stated: In many states, you can file a special cause of action based on your final statement of account. You support your complaint with a copy of the statement of account and an affidavit attesting that the statement of account is accurate. This shifts the burden of proof to the defendant, and if the defendant doesn’t file a proper response disputing the debt, the court will issue a judgment in your favor.
Fraud
In simple terms, a claim of fraud alleges that the debtor made a false claim or representation to you, knowing that their claim was false and that you were acting in reliance upon that statement, and that as a result of your reliance you suffered an injury. Fraud involves more than a claim that the debtor said he was going to pay you but didn’t.
For example, fraud may be alleged where a customer presents you with false bank statements, or a fraudulent letter of credit, making you believe that the customer is financially strong when in fact he has no resources and no intention of paying you, and he gets you to ship goods to him based on his false representations.
Suing owners of corporations
Normally, the owners of an incorporated business are shielded from personal liability for corporate debts. However, corporate officers may be held personally liable to pay you under a number of different theories( but never on a contingency fee, well, almost never), including:
* Undercapitalization: Not enough money was invested at the start to adequately finance the business, or the principals withdrew too much money from the business, resulting in its financial problems.
* Commingling personal and corporate assets: No clear line exists between the personal assets of the owner and the assets of the business. For example, funds belonging to the business may be instead used for personal purposes, such as paying the college tuition of the owner’s children. Or the owner of a small corporation treats the corporate bank account as if it’s his private checking account, keeping his own money in the account and using it to pay household bills.
* Piercing the corporate veil: Seeking to hold corporate officers personally liable as the result of extraordinary misconduct on the part of the officers. For example, you may allege:
* The corporate entity is a mere instrumentality of another entity or individual. The corporation isn’t treated as a separate entity, following the required protocols (holding board meetings, keeping corporate records, and so on), but is instead an alter ego for its principals, who want to avoid personal responsibility for their questionable conduct.
* The corporate entity was used to commit a fraud or a wrong. The primary purpose for the corporation’s creation was to further a wrongful act.
* The corporate entity created an unjust loss or injury to your company. Courts have had difficulty articulating the circumstances under which unjust or inequitable conduct can justify piercing the corporate veil. Suffice it to say, it’s extremely rare.
Most states don’t have a clear standard governing when a corporate entity may be disregarded and the officers sued personally. However, no state makes it easy to pierce the corporate veil.
It’s rare to be able to successfully allege undercapitalization or commingling, as in most cases you don’t have access to any information that would reveal undercapitalization or commingling of funds. Similarly, it’s very unusual to successfully pierce the corporate veil.
Foreclosure and recovery of property
If you’re foreclosing on a lien or mortgage, you may be able to choose between judicial and nonjudicial foreclosure. If your state’s laws require judicial foreclosure, or you believe you may benefit from judicial foreclosure, you file a foreclosure lawsuit. The procedures for filing a foreclosure suit are different in each state. Foreclosure lawsuits can be tricky, so consider getting help from a lawyer.
You may initiate litigation to recover items of property that are in the possession of the debtor. For example, if an invoice wasn’t paid, you may want to recover goods you have shipped to the debtor. Actions to recover physical property are sometimes called replevin actions when based on statute, or detinue actions when based on common law principles.
Bad check actions
If your debtor has paid you with a bad check, you probably have a statutory claim for a civil penalty in addition to recovering the face value of the check. Some states also permit you to recover attorney fees.
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