Steve Harms

Wednesday, April 17, 2013

Debt collection starts with a credit application!

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.

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!