The Debtor Won't Pay Voluntarily -- So Now What Happens? A Look at the Suit Decision and Process
Collecting open accounts on a voluntary basis is becoming increasingly difficult. According to a widely-reported 2009 study conducted by the United States Government, 20% of US households in the have no landline telephone, using only cellular phones. In 2003 that number was only 5%. Factor in caller-ID, private line blocks and voicemail and it is becoming virtually impossible to talk to someone who doesn't want to talk to you. That includes most debtors.
Demand letters, while effective, require a debtor has to take affirmative action to make payment.
What happens when they don't? That's when the creditor has to make a decision as to whether to file suit to enforce its claim. Factors that go into that decision and a basic outline of the suit process will be the focus of this article. Please note this article will address commercial debt only. When collecting retail debt, the collector must comply with the Fair Debt Collection Practices Act (FDCPA) and state regulations that are beyond the scope of this article.
Review claim for dispute
Before filing suit, the claim should be reviewed for possible disputes. Often the reason for non-payment isn't a lack of ability or intention to pay. Often a debtor disputes the amount of the claim. If there is a dispute then the creditor and collector should analyze the dispute to determine whether it is valid and, if not, whether the creditor can prove its claim in court as the debtor may ultimately force the claim to trial.
Matt Burkinshaw, Esq.
The goal of filing suit is to get paid payment, not to get a judgment. The creditor or collector should do a pre-suit analysis to determine whether a debt is collectible. How much time and money is spent on that analysis will depend on the amount of the debt and likelihood of a dispute or counterclaim. Obviously, more time and money will be spent investigating a debtor in a heavily disputed $250,000 claim than in a $5,000 clearly undisputed claim.
The Suit Process
Each state court system handles suit a little differently, however most states follow the same basic suit process:
Complaint and Answer
Civil litigation starts with the filing of the Plaintiff's Complaint in which the Plaintiff tells the Court why it is owed money and how much. The Plaintiff serves the Defendant who must file an answer stating why it does not owe the Plaintiff money. If the Defendant does not answer, the Plaintiff wins by default. Some Defendants believe the best defense is a strong offense so they file a Counter-suit seeking payment from the Plaintiff. The Plaintiff must in turn respond to the counter-suit or risk default on the Counter-suit.
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In some states, a Plaintiff can ask the Court to put a lien on a Defendant's assets as security for Plaintiff's eventual judgment. The Defendant loses its right to use or transfer the assets, which is powerful motivation to address the debt. This tool should be used whenever permitted and the Plaintiff discovers assets available for attachment. A thorough pre-suit asset investigation should discover attachable assets if the debtor has any.
During Discovery the parties exchange documents and information with one another prior in preparation for trial. It is during this phase that the Plaintiff should obtain documentation and information regarding any disputes raised by the Debtor in its answer or counter-suit. Good discovery should prevent "surprises" at trial while also forcing each party to evaluate the strengths and weaknesses of its case.
Where the facts of the case are not disputed, either party may move for Summary Judgment prior to trial. The party asking for Summary Judgment must show that, even if all the facts are considered in a light most favorable to the other side the moving party is entitled to judgment under the law.
Trial is the end result of litigation when parties can not settle, compromise, mediate, or arbitrate their claims in any other fashion.
Trials are designed to give both parties an opportunity to make their best argument for why they should prevail on their claims. The decision is made based on what evidence is allowed to be introduced for consideration by the court. Again- it's not who is "right" -- it is who has the best evidence who wins at trial.
Post judgment remedies vary state to state. If the creditor and attorney found assets during the pre-suit asset search, this is the time to aggressively secure the judgment against those assets and attempt to turn the paper judgment into payment of the debt.
At all points in a collection suit, the attorney and creditor must keep in mind the goal -- which is to obtain payment. Any action taken should further that goal.
Gary Weiner, Esq. is president-elect of the Commercial Law League of America (CLLA). He is a frequent lecturer on bankruptcy and collection topics for bar associations, various clients and trade organizations. He received his J.D. degree from Suffolk University in 1986 and is the managing shareholder of Weiner & Lange, P.C. of Springfield, MA. Mr. Weiner is the editor of Massachusetts Collection Manual, (Butterworth Legal Publishing, 1990) and
the Co-Author of Strategy of a Lender, Loan Collection Litigation In and Out of
Bankruptcy, (National Business Institute, 1992), Recent Developments in Bankruptcy Law, (Massachusetts Bar Continuing Legal Education, 2002) and Advanced Collection Law In Massachusetts, (Lorman Education Services, 2004). Mr. Weiner has been voted a Massachusetts Super Lawyer in Consumer Bankruptcy from 2004-2010. His primary area of practice is bankruptcy, collection and commercial litigation. Mr. Weiner currently serves as President-Elect of the Commercial Law League of America. Mr. Weiner is a frequent lecturer on bankruptcy and collection topics for bar associations, various clients and trade organizations.
Matthew Burkinshaw joined Weiner & Lange, PC as Of Counsel in September 2008. A graduate of the Boston College Carroll School of Management and Suffolk University Law School, Mr. Burkinshaw has practiced in the areas of Creditors' Rights, Commercial and Retail Collections and Business Law for over 15 years. Mr. Burkinshaw is a past Chair of the New England Region of the Commercial Law League of America and has served on the Executive Council and as Chair of the Education Committee for the League's Creditors' Rights Section. Mr. Burkinshaw has written articles for and lectured before the Commercial Law League, Lorman Educational Services and various business groups and trade associations.
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