Collection of Debts
The following article provides a basic outline of the collection process available in Courts.
Quick Acton is Imperative
For a collection action to be successful it is often imperative to take quick decisive action. There are several reasons for the need to act quickly. Often, the older a debt becomes the less likely it is to be paid. Also, there are Statutes of Limitation (time bar constraints) to many causes of action. Additionally, it is often the case when payments stop that the debtor is losing ground financially and is thus in a financially precarious situation. Also, in the case of certain types of debts certain rights of the creditor may expire.
Therefore, in order to minimize the risks associated with the passage of time a collection proceeding should begin as soon as possible after a debt becomes 90 days past due.
Generally, with each passing day the chances of actually collecting a debt decrease. Either the debt becomes buried under a mountain of other more pressing debt or the debtor files bankruptcy.
Making Demand
The first step in any collection matter is to make a written demand for payment. The language of this letter, in order to maximize your rights and comply with legal constraints varies on how the particular contract language, how the debt arose and what remedies are being sought. For instance, a consumer demand letter must provide 30 days for the debtor to dispute the debt or make payment. Also, enforcement of attorney’s fees provisions, acceleration of future payments, penalties, etc. often require specific demand periods and language.
Additionally, often a demand letter coming from an attorney brings the previously ignored debt back to the top of “things to deal with” in the debtor’s stack. In my experience many debtors simply do not take their debts seriously until an attorney contacts them.
Before Going to Court
Following the initial demand letter there is a waiting period as the creditor must wait for the various required notice periods to expire.
During this waiting period we advise a summary review into the debtor’s assets. A major concern in any collection matter is avoiding the situation where one is simply throwing good money at bad money (attempting to collect a debt that will never be collected). The initial investigation is in no way a complete investigation and no guarantee of ultimate collectability. Prior to obtaining a judgment privacy laws and information constraints simply make a full investigation impossible. However, the initial investigation does operate to filter out noticeably bad debts that it would not be economical to pursue.
Also, during this period the debtor often contact the attorney and attempts to negotiate payments and or a settlement of the debt.
Going to Court
Following the expiration of the required demand period if no settlement has been reached it is necessary to file suit on the matter.
Typically, matters involving less than $4,000.00 are filed in small claims court to reduce costs and minimize the formalities associates with District and Superior Court. The major draw back to a Small Claims Court Judgment is easy to appeal. Additionally, not all matters can be brought before a Small Claims Court. However, the simplified small claims process leads to a much faster resolution of the case. For matters filed in Small Claims Court judgment is usually obtained within 60 days of filing suit. However this period may be longer if the case is appealed.
If the small claims process is not available then suit is brought in District or Superior Court. The process of obtaining a judgment in these higher courts is more costly and takes much longer to obtain. However, a Judgment from one of these Courts is exceedingly difficult to appeal and all remedies available can be awarded in the higher courts. District Court is the proper court for cases between $4,000 and $10,000 with Superior Court handling all cases over $10,000.
Pretrial
In many collections cases it is unnecessary to actually go to trial. Avoiding trial is beneficial in that it saves time and money. There are several ways in which trial may be avoided, and thus, the expenses of prosecuting the action kept to a minimum.
Settlement
The most common method of resolving a case before trial is settlement. There are several cost benefits to settling a debt, even at a discount. Primarily, any initial payment is cash in hand and no longer at risk. However, additionally a properly drafted payment arrangement can vastly improve the creditor’s position on the unpaid balance. For example, a Creditor can, by agreement, obtain security for the unpaid balance that was not part of the original agreement. Security for payment can include the ability to seize personal or real property on missed payments or, in come cases, an agreement through where the debtor consents to having Judgment entered against him automatically on non-payment.
Summary & Default Judgment
An additional method of obtaining a Judgment before trial by is by motion (requesting the Judge bring the case come to an end when there are no facts in dispute).
One possibility is obtaining a Judgment by Default. In essence, when the debtor fails to file an Answer (formal denial to the court) the Court will deem all fact true as asserted by the creditor as true and will issue a judgment accordingly.
Summary Judgment on the other hand is available when the debtor acknowledges the debt or has not stated a sufficient defense. The standard used by a court on a summary judgment motion is, essentially, if you take everything assertion and construe it in favor of the Debtor the Creditor is still entitled to Judgment. Thus, if there is a dispute as to the facts of the case (i.e. proper amount delivered, quality of goods or service, etc.) summary judgment will not be available.
Often times in order to obtain the information necessary to ask for Summary Judgment it is necessary to conduct Discovery.
Discovery
Discovery is the process of obtaining information and binding statements from the other party in a contested case. Each party is allowed to ask the other party to provide certain documents, answers to specific questions and/or admit or deny specific facts. Failure to respond to Discovery can result in serious penalties against the non-responding party, including, in extreme cases, simply entering judgment against them. The process can be long and expensive, however, it is crucial to properly preparing a case.
In certain cases the information obtained can be used to procure as Summary Judgment as mentioned above. Many times the information is used in the trial of the matter.
Trial
Trial is only necessary if there are “Facts” in dispute. In this case there must be a “Trier of Fact.” On television the Trier of Fact is usually a Jury, but in practice it is usually a Judge who is conducting a “bench trial.”
In reality, if a trial is necessary, your case is not a “collection” case at all as that implies there is a legally valid and undisputable debt to collect. If a trial is needed there is a disputed claim in litigation. Only once a judgment is issued which puts to rest the disputed points in your favor could it again be considered a collection matter.
Post Judgment Collection
Once a Judgment is obtained it must actually be collected from the Defendant (now called a Judgment Debtor). A Judgment immediately entitles the holder to a lien on all real property held by the Judgment Debtor in the county where the Judgment was obtained. Additionally, the Judgment can easily be filed or transcribed to different counties where the Judgment Debtor holds real property giving rise to a lien in those counties also. A Judgment lien is good for 10 years from the date of the Judgment. This period can be extended for one additional 10-year term by simple Motion to the Court.
However, in order to seize personal property or actually seize any real property to which a Judgment Lien has attached additional steps must be undertaken. The first of these steps is to provide the Judgment Debtor with a Notice of Right to Claim Exemptions. Along with this Notice the Party seeking to enforce the Judgment must send Exemption forms for completion by the Debtor if they wish to exempt any property from collection. Once served a Judgment Debtor has 20 days in which to claim exemptions of certain Personal and Real Property. If property is properly exempted this property cannot be seized to pay the Judgment. However, a Creditor can challenge certain exemptions if they are not in accordance with values prescribed by law.
Once the Judgment Debtor has had a chance to exempt property the Creditor can send the sheriff out to seize property of the Judgment Debtor. In all actuality, unless specific instructions are provided to the Sheriff as to which property should be seized the Order requesting seizure is often returned unfilled. Thus, at this stage in the collection good research into the assets of the Judgment debtor is imperative.
Thus, a whole set of post-judgment procedures and remedies are available to a Judgment Creditor aimed specifically at discovering assets of Judgment Debtors. These remedies are available on Motion and include requiring the Debtor to answer question by Court Order as to amount and location of assets available for seizure. Once assets are discovered through these procedures or through other research available (such as U.C.C. searches and real property records) the Sheriff can be directed to assets available for seizure.
For each piece of property seized an upfront fee must be paid to the Sheriff. This fee is added to the Judgment amount outstanding as a cost of collection. Once the property is seized it is sold at a Judicial Auction with proceeds of that auction less costs going to the Creditor. Any sums unpaid after auction remain owing until the Judgment is paid in full or the Judgment lapses due to the 10 year (20 year by extension) period of enforceability lapses.
Chiarello & Wagner regularly collects debts for clients. If you are in need of assistance collecting a debt please call.
Chiarello & Wagner, PLLC
Winston Tower; Suit 2503
301 N Main St.
Winston Salem, NC 27101
336-723-1561
Quick Acton is Imperative
For a collection action to be successful it is often imperative to take quick decisive action. There are several reasons for the need to act quickly. Often, the older a debt becomes the less likely it is to be paid. Also, there are Statutes of Limitation (time bar constraints) to many causes of action. Additionally, it is often the case when payments stop that the debtor is losing ground financially and is thus in a financially precarious situation. Also, in the case of certain types of debts certain rights of the creditor may expire.
Therefore, in order to minimize the risks associated with the passage of time a collection proceeding should begin as soon as possible after a debt becomes 90 days past due.
Generally, with each passing day the chances of actually collecting a debt decrease. Either the debt becomes buried under a mountain of other more pressing debt or the debtor files bankruptcy.
Making Demand
The first step in any collection matter is to make a written demand for payment. The language of this letter, in order to maximize your rights and comply with legal constraints varies on how the particular contract language, how the debt arose and what remedies are being sought. For instance, a consumer demand letter must provide 30 days for the debtor to dispute the debt or make payment. Also, enforcement of attorney’s fees provisions, acceleration of future payments, penalties, etc. often require specific demand periods and language.
Additionally, often a demand letter coming from an attorney brings the previously ignored debt back to the top of “things to deal with” in the debtor’s stack. In my experience many debtors simply do not take their debts seriously until an attorney contacts them.
Before Going to Court
Following the initial demand letter there is a waiting period as the creditor must wait for the various required notice periods to expire.
During this waiting period we advise a summary review into the debtor’s assets. A major concern in any collection matter is avoiding the situation where one is simply throwing good money at bad money (attempting to collect a debt that will never be collected). The initial investigation is in no way a complete investigation and no guarantee of ultimate collectability. Prior to obtaining a judgment privacy laws and information constraints simply make a full investigation impossible. However, the initial investigation does operate to filter out noticeably bad debts that it would not be economical to pursue.
Also, during this period the debtor often contact the attorney and attempts to negotiate payments and or a settlement of the debt.
Going to Court
Following the expiration of the required demand period if no settlement has been reached it is necessary to file suit on the matter.
Typically, matters involving less than $4,000.00 are filed in small claims court to reduce costs and minimize the formalities associates with District and Superior Court. The major draw back to a Small Claims Court Judgment is easy to appeal. Additionally, not all matters can be brought before a Small Claims Court. However, the simplified small claims process leads to a much faster resolution of the case. For matters filed in Small Claims Court judgment is usually obtained within 60 days of filing suit. However this period may be longer if the case is appealed.
If the small claims process is not available then suit is brought in District or Superior Court. The process of obtaining a judgment in these higher courts is more costly and takes much longer to obtain. However, a Judgment from one of these Courts is exceedingly difficult to appeal and all remedies available can be awarded in the higher courts. District Court is the proper court for cases between $4,000 and $10,000 with Superior Court handling all cases over $10,000.
Pretrial
In many collections cases it is unnecessary to actually go to trial. Avoiding trial is beneficial in that it saves time and money. There are several ways in which trial may be avoided, and thus, the expenses of prosecuting the action kept to a minimum.
Settlement
The most common method of resolving a case before trial is settlement. There are several cost benefits to settling a debt, even at a discount. Primarily, any initial payment is cash in hand and no longer at risk. However, additionally a properly drafted payment arrangement can vastly improve the creditor’s position on the unpaid balance. For example, a Creditor can, by agreement, obtain security for the unpaid balance that was not part of the original agreement. Security for payment can include the ability to seize personal or real property on missed payments or, in come cases, an agreement through where the debtor consents to having Judgment entered against him automatically on non-payment.
Summary & Default Judgment
An additional method of obtaining a Judgment before trial by is by motion (requesting the Judge bring the case come to an end when there are no facts in dispute).
One possibility is obtaining a Judgment by Default. In essence, when the debtor fails to file an Answer (formal denial to the court) the Court will deem all fact true as asserted by the creditor as true and will issue a judgment accordingly.
Summary Judgment on the other hand is available when the debtor acknowledges the debt or has not stated a sufficient defense. The standard used by a court on a summary judgment motion is, essentially, if you take everything assertion and construe it in favor of the Debtor the Creditor is still entitled to Judgment. Thus, if there is a dispute as to the facts of the case (i.e. proper amount delivered, quality of goods or service, etc.) summary judgment will not be available.
Often times in order to obtain the information necessary to ask for Summary Judgment it is necessary to conduct Discovery.
Discovery
Discovery is the process of obtaining information and binding statements from the other party in a contested case. Each party is allowed to ask the other party to provide certain documents, answers to specific questions and/or admit or deny specific facts. Failure to respond to Discovery can result in serious penalties against the non-responding party, including, in extreme cases, simply entering judgment against them. The process can be long and expensive, however, it is crucial to properly preparing a case.
In certain cases the information obtained can be used to procure as Summary Judgment as mentioned above. Many times the information is used in the trial of the matter.
Trial
Trial is only necessary if there are “Facts” in dispute. In this case there must be a “Trier of Fact.” On television the Trier of Fact is usually a Jury, but in practice it is usually a Judge who is conducting a “bench trial.”
In reality, if a trial is necessary, your case is not a “collection” case at all as that implies there is a legally valid and undisputable debt to collect. If a trial is needed there is a disputed claim in litigation. Only once a judgment is issued which puts to rest the disputed points in your favor could it again be considered a collection matter.
Post Judgment Collection
Once a Judgment is obtained it must actually be collected from the Defendant (now called a Judgment Debtor). A Judgment immediately entitles the holder to a lien on all real property held by the Judgment Debtor in the county where the Judgment was obtained. Additionally, the Judgment can easily be filed or transcribed to different counties where the Judgment Debtor holds real property giving rise to a lien in those counties also. A Judgment lien is good for 10 years from the date of the Judgment. This period can be extended for one additional 10-year term by simple Motion to the Court.
However, in order to seize personal property or actually seize any real property to which a Judgment Lien has attached additional steps must be undertaken. The first of these steps is to provide the Judgment Debtor with a Notice of Right to Claim Exemptions. Along with this Notice the Party seeking to enforce the Judgment must send Exemption forms for completion by the Debtor if they wish to exempt any property from collection. Once served a Judgment Debtor has 20 days in which to claim exemptions of certain Personal and Real Property. If property is properly exempted this property cannot be seized to pay the Judgment. However, a Creditor can challenge certain exemptions if they are not in accordance with values prescribed by law.
Once the Judgment Debtor has had a chance to exempt property the Creditor can send the sheriff out to seize property of the Judgment Debtor. In all actuality, unless specific instructions are provided to the Sheriff as to which property should be seized the Order requesting seizure is often returned unfilled. Thus, at this stage in the collection good research into the assets of the Judgment debtor is imperative.
Thus, a whole set of post-judgment procedures and remedies are available to a Judgment Creditor aimed specifically at discovering assets of Judgment Debtors. These remedies are available on Motion and include requiring the Debtor to answer question by Court Order as to amount and location of assets available for seizure. Once assets are discovered through these procedures or through other research available (such as U.C.C. searches and real property records) the Sheriff can be directed to assets available for seizure.
For each piece of property seized an upfront fee must be paid to the Sheriff. This fee is added to the Judgment amount outstanding as a cost of collection. Once the property is seized it is sold at a Judicial Auction with proceeds of that auction less costs going to the Creditor. Any sums unpaid after auction remain owing until the Judgment is paid in full or the Judgment lapses due to the 10 year (20 year by extension) period of enforceability lapses.
Chiarello & Wagner regularly collects debts for clients. If you are in need of assistance collecting a debt please call.
Chiarello & Wagner, PLLC
Winston Tower; Suit 2503
301 N Main St.
Winston Salem, NC 27101
336-723-1561