As uncertainty continues to permeate our economy more and more debtors have difficulty paying their bills. A creditor or lender is in constant competition with those similarly situated and must fight for position and priority in the collection process. A good attorney can ease the process for a creditor or lender by properly drafting the transaction documents and doing much more at the outset. The key is to provide creditors/lenders with remedies and easy access to the debtors/borrowers assets and sources of income via information, written warranties or representations, guarantees and security agreements obtained at time of execution. It is very important for a lender/creditor in the application process to obtain detailed and though rough financial information on a particular borrower or debtor. Financial statements, asset information, places of residence, social security numbers, driver license numbers, spouse and relatives addresses, bank account numbers and bank locations along with asset identification and the employment information are all crucial to the collection process, and can save lots of time and money in pursuing the particular debtor or borrower. In addition to the background information which is critical to the collection process the ability to obtain personal guarantees not only from the debtor/borrower but also from their spouses or other guarantors.
One example of certain language that needs to be in every contract deals with the default provision respect to the debtor or creditor being responsible for all costs, disbursements, attorney’s fees and interest for any collection process that has to be initiated by a lender or creditor. Of similar importance are acceleration clauses exercised upon a default by a debtor or creditor; jurisdictional provisions and choices of law clauses. If one or more debtors or creditors or guarantors are involved, joint in several liability language is very important. Finally, of equal importance title or ownership provisions are crucial were property is leased or collateral is involved, and how such property is to be handled at time of default.
These provisions form a much longer checklist that should be used. Having proper language and upfront intense planning in any agreement is required to optimize a lenders/creditors ability to put a squeeze on a defunct debtor/creditor and maximize the rate of return Debt collection practices in general are regulated by the Fair Debt Collection Practices Act which was enacted to eliminate abusive debt collection practices by debt collectors including those practices that are false, deceptive, unfair or harassing. Any creditor or lender that does more than a handful of debt collection activities a year must comply with the FDCPA and its State counterpart.
The FDCPA limits debtor collector’s ability in terms of ways he or she can communicate with the consumer/debtor directly. The collection of a loan or debt begins with the review of the financial and personal information provided by the debtor followed by default notice letter to the debtor and any guarantors or cosigners, via certified and regular mail.. If a positive response is not obtained by way of notice letter, a credit search or an asset search should be done on the debtors and any guarantors to determine their ability to pay. The asset search also will help the lender/creditor to determine whether the initial disclosures made by debtor or borrower were truthful or misleading.
The next step is to serve a formal Summons and Complaint with Causes of Action for breach of the underlying agreement, conversion or misappropriation of property if property is involved, and misrepresentation or fraud based on false financial disclosures. The Counts for conversion, misrepresentation and fraud are particularly important because they are not dischargeable in bankruptcy. If a settlement is not reached after the service of a Summons and Complaint and a judgment entered in the lenders/creditors favor including interest, attorney’s fees and costs involved in the collection process, judgment is registered in the county where the debtor resides or where other property of the debtor may be located. The judgment will prevent the debtor or creditor from obtaining financing without first paying off the judgment. In addition, the lender/creditor may levy upon the bank accounts and assets of a particular debtor/borrower and may also garnish wages from the employer or the particular debtor/borrower for purposes of satisfying the judgment rendered in its favor by the court.
Richard A. Saliterman