A Michigan Court of Appeals just ruled this month that the FOUR year statute of limitations built in to the Uniform Commercial Code (UCC) applies to all actions for open account sales of goods.
In the case, a payment was made on the account in May of 2005 and the suit was filed in August 2009 (four years and three months). The creditor argued that the payment started a whole new statute running, for SIX years (the traditional contract statute of limitations) rather than just four years.
The Court disagreed with the creditor. While the payment does start the running of the statute of limitations all over again, it runs for FOUR years, not six years.
BOTTOM LINE: in any transaction having to do with goods (as opposed to services like any professional services..accounting, legal, medical, or any other services), make sure your suit is FILED within FOUR years if your state, like Michigan has the typical UCC four year statute of limitations for the sale of goods! (The case is Fisher Sand and Gravel v Neal A Sweebe, an 8 page opinion available through Michigan Lawyers Weekly, 07-75990)
More Michigan Collection Law in extensive detail (700 page book), Handling the Collection Case in Michigan
Steve Harms
Tuesday, June 14, 2011
Wednesday, June 8, 2011
BAD CHECKS: More on what do do about NSF, account closed and other bad checks you receive
Why did the check bounce? Most often it’s because of a mistake by your customer. On rare occasions, it’s the result of the bank’s mistake. With a few simple steps you can minimize the incidence and impact of NSF checks, and an associated “bad check” fee from your bank:
* Deposit checks as soon as they arrive: If your customer has numerous outstanding checks, as is usually the case, being the first creditor to the bank
makes it more likely that your check will clear.
* Anticipate NSF checks: You’ll have customers who at times submit bad checks. You need to be proactive. Maintain sufficient balances in your accounts, and arrange for overdraft protection so when you unknowingly deposit a check that your customer doesn’t have the funds to cover, you don’t end up bouncing your own checks.
* Know your customer: Is your customer careless with accounts and payments, or is your customer experiencing cash-flow problems? Ideally you can anticipate whether you can safely redeposit the check or ask for a new check to be issued, or whether you should regard the NSF check as a pressing matter for collection.
When a check you deposit doesn’t clear, your bank will return the check to you. (It will have a number of marking on the front and back, indicating when and where it was processed by the banks involved and that it was rejected due to there being insufficient funds in the account at the time the check cleared.) If the customer doesn’t immediately offer to replace the NSF check with a cashier’s check, deposit the same check a second time. The second time may be the charm, and it just may clear. You can try to hedge your bet by calling the customer’s bank to see if it will confirm the presence of enough funds in the account for the check to clear, but remember that your customer’s account balance may increase or decrease by the time you deposit the check.
Monitor the second deposit, and if it fails to clear the second time, declare war. Your relationship with your customer has broken down, and it’s time for aggressive collection action. Send your customer a letter demanding that the NSF check be paid immediately.
Many states have laws that impose serious penalties on the act of writing NSF checks. Some of these laws are criminal, and you can call the police upon receiving an NSF check. You can also contact the district attorney’s office for the county where you received the check, and they’ll usually be able to tell both the laws for your state and their policies for prosecuting bad check cases.
Depending upon your state laws you may have to try to recover money from a bad check through civil proceedings (a lawsuit). Criminal prosecution is most likely when a check fails to clear after a COD (cash on delivery) order. When you contact the police, refer to this as a “contemporaneous exchange of value and intent to defraud.” The exchange is contemporaneous because you didn’t extend credit terms and the customer was supposed to pay you at the time of delivery. Intent to defraud is presumed because the customer didn’t put enough money in the account to cover the payment. If you accept payment on account or take a postdated check, the exchange isn’t considered “contemporaneous” and therefore won’t be prosecuted. You may still sue in civil court to try to recover the funds.
Theft by check may be a misdemeanor or even a felony under your state’s laws, but that doesn’t guarantee you’ll see your money. If the offender is put in jail, it may become even harder to recover the funds from the NSF check. How ironic.
For the police to even look at a case where you received an NSF check, there must have been no agreement by you to hold the check for a period of time.
What if your state doesn’t have a criminal statute, or the police tell you that it’s a civil matter that you have to resolve on your own? You use a form letter that reflects your state’s civil laws and penalties for collection of NSF checks. These penalties vary widely by state, so you need to adapt your form letter to match your state’s laws.
In addition to recovering the face value of the check, many states permit you to recover a civil penalty from a customer who issues a bad check. State civil laws allow you to sue the customer for additional sums of money, such as two or three times the amount of the check.
All communications to consumer debtors should include a statement that “This letter is an attempt to collect the debt, and any information obtained will be used for that purpose.” This ensures compliance with federal law 15 USC 1692e(11). When this warning is required but you fail to include it, its omission provides the debtor with grounds to recover money damages from you, even if you do everything else right.
Uncollected funds occur when your customer has deposited a check, possibly from one of its own customers, that fails to clear the bank, which results in your check bouncing. In other words, your customer has a check in its account that should cover the amount of the check it sent to you, but it doesn’t. A domino effect occurs: One bad check begets another.
When a check is returned, stamped “uncollected funds,” typically the situation isn’t as serious as with nonsufficient funds or account-closed payments. Most often, this problem results from your customer’s bad bookkeeping.
Good intentions or bad, you still need to get paid. If you’re unable to reach your customer or arrange for prompt alternative payment, deposit the check a second time. If it again doesn’t clear, let your customer know that you intend to send a courier over that afternoon to pick up replacement funds.
When a customer stops payment on a check, you know that the customer intended that the check be dishonored. Most often your customer will stop payment over a dispute with you, and it doesn’t want to pay until the dispute is resolved. Some customers stop payment as an aggressive means of canceling an order that has already shipped or been delivered. Often the first notice you receive of a customer’s dispute or change of heart is the check being dishonored by the bank.
The law treats stop-payment orders differently than nonsufficient funds or account-closed checks. Although you’re insulted that your customer placed the stop-payment order, a court may see that action as justified.
Preventing stop-payment checks is difficult. The most obvious solution is to insist on cash, money order, or a cashier’s check. Although it’s technically possible to stop payment on a cashier’s check, it’s very unusual for that to happen.
Your customer’s bank account has been closed, so the check you deposit from him won’t clear. The returned check will typically be marked “Account Closed” or “Refer to Maker”. Your initial reaction may be that your customer was malicious (yes, filled with bad intentions) because . . . well . . . who wouldn’t know their account was closed when the check was written? Hmm. But perhaps the customer had a good reason to close the account, or its bank closed it over an infraction or dispute after the customer issued the check.
This is a context where it’s good business to assume bad intent. Some of the most creative stories a collector hears come from customers embarrassed by bouncing checks who, when contacted, create fairy tales about why the check didn’t clear or why the account was closed (count the number of times you hear, “It was my bank’s fault”).
You should take aggressive action to collect account-closed checks. As with customers who have issued NSF checks, instruct everybody in your company who interacts with the bad-check-writer that this customer can’t be trusted and must be placed on cash-only terms. If you have given the customer credit terms, cut them off from further credit right now: Put this book down and go do it (then pick the book up again!). Then call your customer and let him know when your courier will be stopping by for payment.
* Deposit checks as soon as they arrive: If your customer has numerous outstanding checks, as is usually the case, being the first creditor to the bank
makes it more likely that your check will clear.
* Anticipate NSF checks: You’ll have customers who at times submit bad checks. You need to be proactive. Maintain sufficient balances in your accounts, and arrange for overdraft protection so when you unknowingly deposit a check that your customer doesn’t have the funds to cover, you don’t end up bouncing your own checks.
* Know your customer: Is your customer careless with accounts and payments, or is your customer experiencing cash-flow problems? Ideally you can anticipate whether you can safely redeposit the check or ask for a new check to be issued, or whether you should regard the NSF check as a pressing matter for collection.
When a check you deposit doesn’t clear, your bank will return the check to you. (It will have a number of marking on the front and back, indicating when and where it was processed by the banks involved and that it was rejected due to there being insufficient funds in the account at the time the check cleared.) If the customer doesn’t immediately offer to replace the NSF check with a cashier’s check, deposit the same check a second time. The second time may be the charm, and it just may clear. You can try to hedge your bet by calling the customer’s bank to see if it will confirm the presence of enough funds in the account for the check to clear, but remember that your customer’s account balance may increase or decrease by the time you deposit the check.
Monitor the second deposit, and if it fails to clear the second time, declare war. Your relationship with your customer has broken down, and it’s time for aggressive collection action. Send your customer a letter demanding that the NSF check be paid immediately.
Many states have laws that impose serious penalties on the act of writing NSF checks. Some of these laws are criminal, and you can call the police upon receiving an NSF check. You can also contact the district attorney’s office for the county where you received the check, and they’ll usually be able to tell both the laws for your state and their policies for prosecuting bad check cases.
Depending upon your state laws you may have to try to recover money from a bad check through civil proceedings (a lawsuit). Criminal prosecution is most likely when a check fails to clear after a COD (cash on delivery) order. When you contact the police, refer to this as a “contemporaneous exchange of value and intent to defraud.” The exchange is contemporaneous because you didn’t extend credit terms and the customer was supposed to pay you at the time of delivery. Intent to defraud is presumed because the customer didn’t put enough money in the account to cover the payment. If you accept payment on account or take a postdated check, the exchange isn’t considered “contemporaneous” and therefore won’t be prosecuted. You may still sue in civil court to try to recover the funds.
Theft by check may be a misdemeanor or even a felony under your state’s laws, but that doesn’t guarantee you’ll see your money. If the offender is put in jail, it may become even harder to recover the funds from the NSF check. How ironic.
For the police to even look at a case where you received an NSF check, there must have been no agreement by you to hold the check for a period of time.
What if your state doesn’t have a criminal statute, or the police tell you that it’s a civil matter that you have to resolve on your own? You use a form letter that reflects your state’s civil laws and penalties for collection of NSF checks. These penalties vary widely by state, so you need to adapt your form letter to match your state’s laws.
In addition to recovering the face value of the check, many states permit you to recover a civil penalty from a customer who issues a bad check. State civil laws allow you to sue the customer for additional sums of money, such as two or three times the amount of the check.
All communications to consumer debtors should include a statement that “This letter is an attempt to collect the debt, and any information obtained will be used for that purpose.” This ensures compliance with federal law 15 USC 1692e(11). When this warning is required but you fail to include it, its omission provides the debtor with grounds to recover money damages from you, even if you do everything else right.
Uncollected funds occur when your customer has deposited a check, possibly from one of its own customers, that fails to clear the bank, which results in your check bouncing. In other words, your customer has a check in its account that should cover the amount of the check it sent to you, but it doesn’t. A domino effect occurs: One bad check begets another.
When a check is returned, stamped “uncollected funds,” typically the situation isn’t as serious as with nonsufficient funds or account-closed payments. Most often, this problem results from your customer’s bad bookkeeping.
Good intentions or bad, you still need to get paid. If you’re unable to reach your customer or arrange for prompt alternative payment, deposit the check a second time. If it again doesn’t clear, let your customer know that you intend to send a courier over that afternoon to pick up replacement funds.
When a customer stops payment on a check, you know that the customer intended that the check be dishonored. Most often your customer will stop payment over a dispute with you, and it doesn’t want to pay until the dispute is resolved. Some customers stop payment as an aggressive means of canceling an order that has already shipped or been delivered. Often the first notice you receive of a customer’s dispute or change of heart is the check being dishonored by the bank.
The law treats stop-payment orders differently than nonsufficient funds or account-closed checks. Although you’re insulted that your customer placed the stop-payment order, a court may see that action as justified.
Preventing stop-payment checks is difficult. The most obvious solution is to insist on cash, money order, or a cashier’s check. Although it’s technically possible to stop payment on a cashier’s check, it’s very unusual for that to happen.
Your customer’s bank account has been closed, so the check you deposit from him won’t clear. The returned check will typically be marked “Account Closed” or “Refer to Maker”. Your initial reaction may be that your customer was malicious (yes, filled with bad intentions) because . . . well . . . who wouldn’t know their account was closed when the check was written? Hmm. But perhaps the customer had a good reason to close the account, or its bank closed it over an infraction or dispute after the customer issued the check.
This is a context where it’s good business to assume bad intent. Some of the most creative stories a collector hears come from customers embarrassed by bouncing checks who, when contacted, create fairy tales about why the check didn’t clear or why the account was closed (count the number of times you hear, “It was my bank’s fault”).
You should take aggressive action to collect account-closed checks. As with customers who have issued NSF checks, instruct everybody in your company who interacts with the bad-check-writer that this customer can’t be trusted and must be placed on cash-only terms. If you have given the customer credit terms, cut them off from further credit right now: Put this book down and go do it (then pick the book up again!). Then call your customer and let him know when your courier will be stopping by for payment.
Friday, May 20, 2011
Electronic Signatures on business contracts ARE enforceable!
Electronic signatures, such as confirming emails or click-ons ("I agree") or similar buttons are valid means of entering into contracts which are binding, and which will be upheld in court.
There are two main laws dealing with the topic of electronic signatures, the Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA).
E-Sign is a federal act enacted 10/1/2000 providing that no contract be “denied legal” effect solely because it is in electronic form. In other words, an electronic signature may be just as enforceable as a written one.
UETA is a state act enacted in 1999 to create uniformity in state laws pertaining to e-commerce. This act is very similar to E-SIGN in that it establishes that “records, signatures, and contracts may not be denied enforceability solely due to their electronic form.”
The state law, UETA, is a uniform act, which, like the UCC, has been adopted in some form by most states…Michigan has adopted it.
Now, what is important is that both sides agree to the use of electronic signatures and that there be a way to prove the customer/debtor did consent….for example, client should require debtor to email back, or have a click on button “I agree” or something similar. IF information is merely AVAILABLE online, that won’t be adequate.
Most states also have restrictions on what contracts can be made or cancelled with e-sign…for example, insurance companies still have to mail out written cancellations of policies even if the contracts to purchase insurance were done by e-sign.
There are cases at the appeal level which have upheld the validity of e-sign by email and click on agreements.
Then, there is the practical, as opposed to legal, factor: some judges aren’t in the 20th Century!
Find out more: Handling the Collection Case in Michigan
There are two main laws dealing with the topic of electronic signatures, the Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA).
E-Sign is a federal act enacted 10/1/2000 providing that no contract be “denied legal” effect solely because it is in electronic form. In other words, an electronic signature may be just as enforceable as a written one.
UETA is a state act enacted in 1999 to create uniformity in state laws pertaining to e-commerce. This act is very similar to E-SIGN in that it establishes that “records, signatures, and contracts may not be denied enforceability solely due to their electronic form.”
The state law, UETA, is a uniform act, which, like the UCC, has been adopted in some form by most states…Michigan has adopted it.
Most states also have restrictions on what contracts can be made or cancelled with e-sign…for example, insurance companies still have to mail out written cancellations of policies even if the contracts to purchase insurance were done by e-sign.
There are cases at the appeal level which have upheld the validity of e-sign by email and click on agreements.
Then, there is the practical, as opposed to legal, factor: some judges aren’t in the 20th Century!
Find out more: Handling the Collection Case in Michigan
Thursday, May 12, 2011
Collection follow up -- when to place claim with a professional
If you have good collection policies, they include timeframes in which to take certain actions, such as the following:
* Following up with demand letters requiring payment when an account balance becomes delinquent.
* Following up with collection phone calls when demand letters don’t produce payment.
* Immediately following up with the debtor when the debtor doesn’t keep promises to make payment.
When you’ve taken the actions defined by your collection policy and your debtor still hasn’t paid, you shift into collections mode. Delay in initiating collection action, including bringing in collections professionals as appropriate, can be the death knell for collecting on the account. If your debtor still has (or may have) some ability to pay but continues to stall payment, you need to move quickly.
After you decide to start the collections process, do you collect the delinquent account yourself, or do you bring in a professional? You should consider placing an account with a professional when
* Lines of communication between you and the debtor have completely broken down.
* You can’t reach your debtor by phone, and you think your debtor may have skipped town.
* You sense that your debtor has financial difficulties and has several other unpaid creditors who will be going after what’s left of your debtor’s money.
* You don’t trust the debtor’s words or intentions because of the passage of time since the last payment and the number of promises the debtor has broken.
* Your debtor’s delinquency threatens your own credit by putting you in danger of violating standards set by your auditors, banks, factors, or receivable insurance contracts.
* Your instinct tells you it’s time to bring in a professional.
Strive for a team like relationship with your collection agency or attorney in which the agency or lawyer is an extension of your credit department. Without a good relationship, you may feel awkward referring a case to an outside collector, but relying on team members for assistance seems only natural.
Credit and Collections Kit is here to help you with this
* Following up with demand letters requiring payment when an account balance becomes delinquent.
* Following up with collection phone calls when demand letters don’t produce payment.
* Immediately following up with the debtor when the debtor doesn’t keep promises to make payment.
When you’ve taken the actions defined by your collection policy and your debtor still hasn’t paid, you shift into collections mode. Delay in initiating collection action, including bringing in collections professionals as appropriate, can be the death knell for collecting on the account. If your debtor still has (or may have) some ability to pay but continues to stall payment, you need to move quickly.
After you decide to start the collections process, do you collect the delinquent account yourself, or do you bring in a professional? You should consider placing an account with a professional when
* Lines of communication between you and the debtor have completely broken down.
* You can’t reach your debtor by phone, and you think your debtor may have skipped town.
* You sense that your debtor has financial difficulties and has several other unpaid creditors who will be going after what’s left of your debtor’s money.
* You don’t trust the debtor’s words or intentions because of the passage of time since the last payment and the number of promises the debtor has broken.
* Your debtor’s delinquency threatens your own credit by putting you in danger of violating standards set by your auditors, banks, factors, or receivable insurance contracts.
* Your instinct tells you it’s time to bring in a professional.
Strive for a team like relationship with your collection agency or attorney in which the agency or lawyer is an extension of your credit department. Without a good relationship, you may feel awkward referring a case to an outside collector, but relying on team members for assistance seems only natural.
Monday, May 9, 2011
Bankruptcy: Some of the features you need to know
Bankruptcy operates in its own little world. It has its own court system, and its own terminology. A bit of familiarity with bankruptcy jargon and procedures can be helpful:
* Automatic stay: The filing of a bankruptcy petition triggers a 120 day period during which creditors may take no action against a debtor or the debtor’s property. Under some circumstances it may be possible to get a bankruptcy court to grant relief from the automatic stay, but absent court permission a violation can trigger contempt sanctions.
* Filing a proof of claim: When you receive a notice of bankruptcy, stop your collection activity and file a proof of claim. Through doing so, you will receive a dividend or a payment equivalent to what other unsecured creditors will receive. If you do not file a proof of claim, you will probably not receive additional notices and you will also probably not receive a dividend.
* Preference payments: A preference is money paid to a creditor on the account while the debtor was insolvent and within 90 days of the bankruptcy filing. If you receive payment under those circumstances, the bankruptcy trustee may demand that you repay the preference amount. If you haven’t made any special deal with the debtor and he owes you the money, that may not seem fair. But the theory is that a bankrupt debtor shouldn’t be allowed to pick and choose which creditors he wants to pay within 90 days of the bankruptcy filing. (Besides, more often than not you won’t be the lucky creditor who received that $1,000, and it will somehow seem fairer that the money comes back into the pool.) Preferences are limited to amounts over $5000 in commercial and $600 consumer.
* Getting stuff back from the bankrupt debtor: Within 45 days of a bankrupt debtor’s receiving your product, you may be entitled to demand its return if the sale was an ordinary sale that occurred while the bankrupt was insolvent, and you make your demand while the debtor is still in possession of those goods. When you have the right to do so, make a written demand for the return of that product. As a practical matter, telephone the debtor first to let them know that the demand is forthcoming, then follow up with a quick writing. Once the debtor ships the goods to one of its customers, you lose the right to reclaim.
* Creditors’ Committees: In some large bankruptcies, primarily Chapter 11’s, creditors’ committees are formed of the 5 or 7 largest unsecured creditors. If your company is one of the larger creditors, you may receive a notice and an opportunity to sit on the creditors’ committee. Membership on a creditors’ committee is entirely optional and voluntary.
* Dischargeability and Nondischargeability: Some of the debts of a bankrupt debtor are dischargeable and others are nondischargeable. Typical dischargeable debts include ordinary trade debt, ordinary credit card debt, utilities, unsecured bank loans and other forms of unsecured debt. The debtor doesn’t have to pay any portion of a debt that is discharged.
Other forms of debt just never go away. The government, for example, gives itself a great deal of protection from bankruptcy. Taxes, court fines and student loans are usually nondischargeable debts because they are due to or guaranteed by the government. Other examples of nondischargeable debts include child support, and debts resulting from fraud or malicious acts taken against persons. Should you have a debt that you believe is nondischargeable, you may benefit from consulting a lawyer about filing a special action within the bankruptcy court to declare your debt nondischargeable. If the action succeeds, debtor will still have to pay the debt, even after bankruptcy.
* Reaffirmation and Redemption Agreements: Sometimes a debtor wants to keep secured collateral, such as a car or house that is subject to a lien or mortgage. Reaffirmation and redemption agreements allow the debtor to pay part or all of a debt owed to a secured creditor in order to keep the collateral. In a reaffirmation agreement, the debtor agrees to keep making payments on the loan in order to keep the collateral. Sometimes the terms of the loan are modified. In a redemption agreement, the debtor agrees to pay off the balance owed in order to keep the collateral. If the amount owed exceeds market value, redemption may occur following a motion with the court to permit redemption at market value.
* Dismissal of a bankruptcy proceeding: Sometimes debtors file bankruptcy in order to get people off their backs. Once the immediate pressure from creditors is removed, bankruptcies are sometimes quietly dismissed. Dismissal lifts the automatic stay, permitting you to proceed against the debtor as if bankruptcy had never been filed.
The Bankruptcy Act is about a million pages long and includes about a million incomprehensible terms, only a few of which are referenced above. Rather than trying to figure out the ins and outs of the law, your best bet is to file a timely proof of claim and just wait and see what happens. If you feel you have a special cause of action, such as fraud or the right to get your stuff back (goods shipped to the debtor within 45 days), consider talking to a bankruptcy attorney.
All the Credit and Collection Law you need: at your fingertips
* Automatic stay: The filing of a bankruptcy petition triggers a 120 day period during which creditors may take no action against a debtor or the debtor’s property. Under some circumstances it may be possible to get a bankruptcy court to grant relief from the automatic stay, but absent court permission a violation can trigger contempt sanctions.
* Filing a proof of claim: When you receive a notice of bankruptcy, stop your collection activity and file a proof of claim. Through doing so, you will receive a dividend or a payment equivalent to what other unsecured creditors will receive. If you do not file a proof of claim, you will probably not receive additional notices and you will also probably not receive a dividend.
* Preference payments: A preference is money paid to a creditor on the account while the debtor was insolvent and within 90 days of the bankruptcy filing. If you receive payment under those circumstances, the bankruptcy trustee may demand that you repay the preference amount. If you haven’t made any special deal with the debtor and he owes you the money, that may not seem fair. But the theory is that a bankrupt debtor shouldn’t be allowed to pick and choose which creditors he wants to pay within 90 days of the bankruptcy filing. (Besides, more often than not you won’t be the lucky creditor who received that $1,000, and it will somehow seem fairer that the money comes back into the pool.) Preferences are limited to amounts over $5000 in commercial and $600 consumer.
* Getting stuff back from the bankrupt debtor: Within 45 days of a bankrupt debtor’s receiving your product, you may be entitled to demand its return if the sale was an ordinary sale that occurred while the bankrupt was insolvent, and you make your demand while the debtor is still in possession of those goods. When you have the right to do so, make a written demand for the return of that product. As a practical matter, telephone the debtor first to let them know that the demand is forthcoming, then follow up with a quick writing. Once the debtor ships the goods to one of its customers, you lose the right to reclaim.
* Creditors’ Committees: In some large bankruptcies, primarily Chapter 11’s, creditors’ committees are formed of the 5 or 7 largest unsecured creditors. If your company is one of the larger creditors, you may receive a notice and an opportunity to sit on the creditors’ committee. Membership on a creditors’ committee is entirely optional and voluntary.
* Dischargeability and Nondischargeability: Some of the debts of a bankrupt debtor are dischargeable and others are nondischargeable. Typical dischargeable debts include ordinary trade debt, ordinary credit card debt, utilities, unsecured bank loans and other forms of unsecured debt. The debtor doesn’t have to pay any portion of a debt that is discharged.
Other forms of debt just never go away. The government, for example, gives itself a great deal of protection from bankruptcy. Taxes, court fines and student loans are usually nondischargeable debts because they are due to or guaranteed by the government. Other examples of nondischargeable debts include child support, and debts resulting from fraud or malicious acts taken against persons. Should you have a debt that you believe is nondischargeable, you may benefit from consulting a lawyer about filing a special action within the bankruptcy court to declare your debt nondischargeable. If the action succeeds, debtor will still have to pay the debt, even after bankruptcy.
* Reaffirmation and Redemption Agreements: Sometimes a debtor wants to keep secured collateral, such as a car or house that is subject to a lien or mortgage. Reaffirmation and redemption agreements allow the debtor to pay part or all of a debt owed to a secured creditor in order to keep the collateral. In a reaffirmation agreement, the debtor agrees to keep making payments on the loan in order to keep the collateral. Sometimes the terms of the loan are modified. In a redemption agreement, the debtor agrees to pay off the balance owed in order to keep the collateral. If the amount owed exceeds market value, redemption may occur following a motion with the court to permit redemption at market value.
* Dismissal of a bankruptcy proceeding: Sometimes debtors file bankruptcy in order to get people off their backs. Once the immediate pressure from creditors is removed, bankruptcies are sometimes quietly dismissed. Dismissal lifts the automatic stay, permitting you to proceed against the debtor as if bankruptcy had never been filed.
The Bankruptcy Act is about a million pages long and includes about a million incomprehensible terms, only a few of which are referenced above. Rather than trying to figure out the ins and outs of the law, your best bet is to file a timely proof of claim and just wait and see what happens. If you feel you have a special cause of action, such as fraud or the right to get your stuff back (goods shipped to the debtor within 45 days), consider talking to a bankruptcy attorney.
All the Credit and Collection Law you need: at your fingertips
Tuesday, May 3, 2011
Michigan Mortgage Foreclosures: MERS can't legally foreclose!
This is hot and important news for debtors and creditors who have mortgages expedited (how ironic) through MERS (Mortgage Electronic Registration Systems, Inc.) in Michigan. The Michigan Court of Appeals just ruled in a 17 page opinion that MERS can't act to foreclose or evict in its name, because MERS, simply put, is not the owner of the debt which underlies the mortgage (a mortgage is just a lien, a debt is evidenced by a note).
So, MERS based mortgages are halted, but what about the foreclosures and evictions which have already occurred....no cases on that issue...yet. However, there are lots of mortgages in foreclosure right now, where the process of foreclosing may have to be re-started as the result of this ruling.
As many as 60 million mortgages were written by MERS, which is a company set up by big financial institutions to expedite the process.
Perhaps the underlying law may be changed. Perhaps future foreclosures will be done under the lender's name...who knows.
This information came through several sources. Michigan Lawyers Weekly, Vol. 25 No. 25 page one has a great write up on the topic. Its web site is attached: http://www.milawyersweekly.com/. The case name is Residential Funding v. Saurman.
So, MERS based mortgages are halted, but what about the foreclosures and evictions which have already occurred....no cases on that issue...yet. However, there are lots of mortgages in foreclosure right now, where the process of foreclosing may have to be re-started as the result of this ruling.
As many as 60 million mortgages were written by MERS, which is a company set up by big financial institutions to expedite the process.
Perhaps the underlying law may be changed. Perhaps future foreclosures will be done under the lender's name...who knows.
This information came through several sources. Michigan Lawyers Weekly, Vol. 25 No. 25 page one has a great write up on the topic. Its web site is attached: http://www.milawyersweekly.com/. The case name is Residential Funding v. Saurman.
Garnishment of Social Security and SSI benefits after May 1, 2011
It has always been improper to take anyone’s SS or SSI or similar benefit from a bank or credit union pursuant to a garnishment ...the change you may be hearing about, which supposedly took place on May 1 made it more of a requirement for banks and other financial institutions to identify and exclude those funds from disclosures (the funds are being “tagged electronically” somehow) as the financial institution usually doesn’t KNOW what funds are garnishable and what funds are excluded.
Some banks have been disclosing (that is, holding for the creditor) all the deposited funds, requiring the parties to fight about what should be excluded. Some banks have been attempting to disclose only exempt funds...the practice by banks has varied widely, to be blunt about it...and the practice from state to state has also varied widely.
The May 1st requirements may put a big burden on these financial institutions not to disclose any excluded funds.
So, while creditors shouldn’t have been able to get at excluded funds, such as social security benefits, prior to May 1st…the confusion lies in the new requirement for banks to be more proactive in excluding those funds from any garnishments.
There may be some further clarifications of the changes in how garnished financial institutions of individuals (not businesses) are to be handled....if I get any, I'll post 'em for you.
That’s my understanding. This is not legal advice, merely my comments and casual statements.
Some banks have been disclosing (that is, holding for the creditor) all the deposited funds, requiring the parties to fight about what should be excluded. Some banks have been attempting to disclose only exempt funds...the practice by banks has varied widely, to be blunt about it...and the practice from state to state has also varied widely.
The May 1st requirements may put a big burden on these financial institutions not to disclose any excluded funds.
So, while creditors shouldn’t have been able to get at excluded funds, such as social security benefits, prior to May 1st…the confusion lies in the new requirement for banks to be more proactive in excluding those funds from any garnishments.
There may be some further clarifications of the changes in how garnished financial institutions of individuals (not businesses) are to be handled....if I get any, I'll post 'em for you.
That’s my understanding. This is not legal advice, merely my comments and casual statements.
Thursday, April 28, 2011
FINANCIAL STATEMENTS: HOW AND WHY THEY ARE IMPORTANT
A. The value of a financial statement
A financial statement is the financial picture of a company at a particular point in time. It is exactly the same as taking a picture of your children. Within a few weeks, they changed, didn’t they? Within a month or so, there are generally significant changes, right? Within a year or two, your kids don’t look anything like they did a year ago. Well, financial statements are exactly the same. A current financial statement is the only good financial statement. An audited financial statement is better than an unaudited one. What am I talking about: a financial statement is the picture of assets and liabilities. An operating statement is the sales and profit/loss. Both are dated. For example, a financial statement may be dated December 31, 2006. That statement might be valuable to determine credit transactions for several months. An operating statement is over a span of time such as January 1, 2006 through December 31, 2006. Sales and profits for a year are posted. Again, audited financial statements are better than unaudited ones. Simply put, the audit carries the reputation of the certified public accounting firm that prepared it. Why aren’t all financial statements audited? Simply put, they are expensive.
B. The “useful” components of a financial statement when extending credit or assessing collectability.
For extending credit, a couple of ratios come to the forefront. First, the current ratio. The current ratio is current assets divided by current liabilities. If current liabilities exceed current assets, watch out. The ideal is current assets substantially in excess of current liabilities. What this means to you: the company has sufficient assets to cover its debts. Also, examine:
Quick ratio, which is quick assets divided by current liabilities. Quick assets are assets that are quick to liquidate such as cash, accounts receivables, certificates of deposit. Current assets which would not be included as quick assets would be slow moving inventory. Hopefully, quick assets are sufficient to cover current liabilities. What this means to you: the company has sufficient cash and receivables to cover its current liabilities which are all of its short term debt (debt which is less than a year old). Even here, there are problems. What if the accounts receivable are no longer collectible? Oh No.
Net working capital ratio is net working capital divided by total assets. The net working capital of a company is its current assets minus its current liabilities.
Don’t get carried away with these ratios. There are whole courses on studying financial statements such as that found at www.investopedia.com. There is a printable 74 page advanced financial statement analysis form available free, absolutely free, at that cite. Topics include Whose in Charge?, The System, Cash Flow, Earnings, Revenue, Working Capital, etc.
C. Popular Terms
If you looked up the phrase Cash Flow, you would get a thousand different definitions if you searched a thousand different web sites. Commonly speaking, cash flow is something that debtors say they don’t have enough of. The first step in generating cash flow is to create sales. Sales put the product out the door. Accounts receivable bring the money back in the door.
If the company is not generating sales, they can’t generate cash flow. If the company doesn’t collect its receivables, there is no cash flow either. Example: I have run into a number of construction companies which has done work for the Katrina Hurricane Relief in New Orleans. None of them have been paid a dime, according to their managers, and they thought they were working for the federal government (FEMA) and thought they would be paid right away. If you don’t collect your receivables, you might as well not sell your product.
Working capital is another popular phrase. Working capital is the money used to pay short term obligations, such as paying vendor bills. In that sense, it is just like cash flow: debtors always claim they don’t have enough working capital. Businesses which have heavily invested in fixed assets, long term debt, and inventory build up have a hard time generating a good level of working capital. Once again, we look at the quick asset ratio; they don’t have enough cash, receivables, certificates of deposits and other assets quickly liquid in order to satisfy debt which becomes due in 30 days such as vendor obligations.
Tons of Tips on Credit and Collections: THE book, Credit and Collections Kit
A financial statement is the financial picture of a company at a particular point in time. It is exactly the same as taking a picture of your children. Within a few weeks, they changed, didn’t they? Within a month or so, there are generally significant changes, right? Within a year or two, your kids don’t look anything like they did a year ago. Well, financial statements are exactly the same. A current financial statement is the only good financial statement. An audited financial statement is better than an unaudited one. What am I talking about: a financial statement is the picture of assets and liabilities. An operating statement is the sales and profit/loss. Both are dated. For example, a financial statement may be dated December 31, 2006. That statement might be valuable to determine credit transactions for several months. An operating statement is over a span of time such as January 1, 2006 through December 31, 2006. Sales and profits for a year are posted. Again, audited financial statements are better than unaudited ones. Simply put, the audit carries the reputation of the certified public accounting firm that prepared it. Why aren’t all financial statements audited? Simply put, they are expensive.
B. The “useful” components of a financial statement when extending credit or assessing collectability.
For extending credit, a couple of ratios come to the forefront. First, the current ratio. The current ratio is current assets divided by current liabilities. If current liabilities exceed current assets, watch out. The ideal is current assets substantially in excess of current liabilities. What this means to you: the company has sufficient assets to cover its debts. Also, examine:
Quick ratio, which is quick assets divided by current liabilities. Quick assets are assets that are quick to liquidate such as cash, accounts receivables, certificates of deposit. Current assets which would not be included as quick assets would be slow moving inventory. Hopefully, quick assets are sufficient to cover current liabilities. What this means to you: the company has sufficient cash and receivables to cover its current liabilities which are all of its short term debt (debt which is less than a year old). Even here, there are problems. What if the accounts receivable are no longer collectible? Oh No.
Net working capital ratio is net working capital divided by total assets. The net working capital of a company is its current assets minus its current liabilities.
Don’t get carried away with these ratios. There are whole courses on studying financial statements such as that found at www.investopedia.com. There is a printable 74 page advanced financial statement analysis form available free, absolutely free, at that cite. Topics include Whose in Charge?, The System, Cash Flow, Earnings, Revenue, Working Capital, etc.
C. Popular Terms
If you looked up the phrase Cash Flow, you would get a thousand different definitions if you searched a thousand different web sites. Commonly speaking, cash flow is something that debtors say they don’t have enough of. The first step in generating cash flow is to create sales. Sales put the product out the door. Accounts receivable bring the money back in the door.
If the company is not generating sales, they can’t generate cash flow. If the company doesn’t collect its receivables, there is no cash flow either. Example: I have run into a number of construction companies which has done work for the Katrina Hurricane Relief in New Orleans. None of them have been paid a dime, according to their managers, and they thought they were working for the federal government (FEMA) and thought they would be paid right away. If you don’t collect your receivables, you might as well not sell your product.
Working capital is another popular phrase. Working capital is the money used to pay short term obligations, such as paying vendor bills. In that sense, it is just like cash flow: debtors always claim they don’t have enough working capital. Businesses which have heavily invested in fixed assets, long term debt, and inventory build up have a hard time generating a good level of working capital. Once again, we look at the quick asset ratio; they don’t have enough cash, receivables, certificates of deposits and other assets quickly liquid in order to satisfy debt which becomes due in 30 days such as vendor obligations.
Tons of Tips on Credit and Collections: THE book, Credit and Collections Kit
Monday, April 25, 2011
Real Stuff - No Fluff...
All my postings in this blog have been on topics of credit and collections, mostly collections.
Until this posting.
I just wanted to say "thank you" for your positive feedback...compliments.
Now back to your regularly scheduled programming!
No more fluff.
Honest.
Steve Harms
Until this posting.
I just wanted to say "thank you" for your positive feedback...compliments.
Now back to your regularly scheduled programming!
No more fluff.
Honest.
Steve Harms
Wednesday, April 20, 2011
Collection Law: Tips for an enforceable personal guaranty
Is there a personal guarantee in a situation where a corporate officer has signed it as agent of the corporation?
Consider a case where a document signed by the guarantor titled “GUARANTEE OF LEASE,”which identifies the signor as a “Guarantor” and it provides, in part: “IN CONSIDERATION of the making of the above lease by the Lessor….the undersigned….as a direct and primary obligation, guarantees, to the Lessor and any assignee….the prompt payment of rent.” It allows the creditor to proceed directly against the guarantor without first pursing the corporation.
The catch is that he signed it with his name followed by the word, “President”. This, argued the signor, created ambiguity and removes any personal liability (that is, he claims he was acting as “president” or an agent of his company which means he is NOT personally liable for payment of the document.)
This is actually a good argument under the Uniform Commercial Code. Our office has cautioned our clients for years not to allow a guarantor to sign in any capacity other than individually. In other words, don’t allow a personal guarantor to sign his name, then insert a comma and the word “president” or “vice president” or any such title which would tend to show he is acting as an agent rather than in his individual capacity.
The trial court, however, found in favor of the creditor by denying the agreement was at all ambiguous. The court found the word “president” appeared to be no more than a descriptive word of who the defendant was….and stated “Indeed, a corporate guarantee would have been meaningless, given that AFG was already bound as principal….Although a court may reform a contract to reflect the parties’ actual intent where the evidence clearly shows a meeting of the minds that was not properly expressed in the instrument...the trial court here properly enforced the contract as written, in accordance with its clear and unambiguous terms.”
So, we won that one for our client…but, to be honest, it could have gone the other way very easily! So, again, the lesson to be learned here is: don’t allow your personal guarantor to use a title after his name!
Tons more practical tips on CREDIT and COLLECTIONS!
Consider a case where a document signed by the guarantor titled “GUARANTEE OF LEASE,”which identifies the signor as a “Guarantor” and it provides, in part: “IN CONSIDERATION of the making of the above lease by the Lessor….the undersigned….as a direct and primary obligation, guarantees, to the Lessor and any assignee….the prompt payment of rent.” It allows the creditor to proceed directly against the guarantor without first pursing the corporation.
The catch is that he signed it with his name followed by the word, “President”. This, argued the signor, created ambiguity and removes any personal liability (that is, he claims he was acting as “president” or an agent of his company which means he is NOT personally liable for payment of the document.)
This is actually a good argument under the Uniform Commercial Code. Our office has cautioned our clients for years not to allow a guarantor to sign in any capacity other than individually. In other words, don’t allow a personal guarantor to sign his name, then insert a comma and the word “president” or “vice president” or any such title which would tend to show he is acting as an agent rather than in his individual capacity.
The trial court, however, found in favor of the creditor by denying the agreement was at all ambiguous. The court found the word “president” appeared to be no more than a descriptive word of who the defendant was….and stated “Indeed, a corporate guarantee would have been meaningless, given that AFG was already bound as principal….Although a court may reform a contract to reflect the parties’ actual intent where the evidence clearly shows a meeting of the minds that was not properly expressed in the instrument...the trial court here properly enforced the contract as written, in accordance with its clear and unambiguous terms.”
So, we won that one for our client…but, to be honest, it could have gone the other way very easily! So, again, the lesson to be learned here is: don’t allow your personal guarantor to use a title after his name!
Tons more practical tips on CREDIT and COLLECTIONS!
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