Most of the time, our role is to pursue collection of the debt.
While we are performing these roles for our clients (and although uncommon), a client might also have someone who is pursuing collections against them. Our client might have a legitimate dispute as to why they have not paid, but the fact remains that they are still being sued or harassed. Our firm does asset protection work, as well, so we help clients use certain asset protection tools to protect their individual assets and, if possible, those of their business if they are or become liable to a creditor.
What Are the Different Types of Claims That You Generally Work on Behalf of Your Clients?
There are generally two types of debt: they are either secured or unsecured. Secured means it is backed up, so to speak, by tangible or intangible property (e.g., a residence, an office building, the assets of the business, the inventory of the business, the bank accounts of the business, etc.). In our practice, we deal mostly with collection of unsecured debts. For example, let’s say you sent out an invoice, shipped a product, and believed in good faith that you would be paid, but the money does not come; or you made a $100,000 loan as an investment in a business and have not been repaid. Those are examples of unsecured debts.
With unsecured debts, we cannot just foreclose or seize an item of collateral. Instead, we generally have to go to court and take steps to collect. If Once we have a court judgment, we can convert the unsecured claim to a secured claim by recording an appropriate lien, either with the county recorder for real property or with the Secretary of State for personal property.
There are also consumer versus commercial claims. The focus of this book is on commercial (i.e.,. business-to-business) claims, as the vast majority of our debt collection practice deals with business-related claims. Business claims generally involve greater sums of money than consumer debts. They are generally easier to collect than consumer debts because businesses do not have the same exemptions and defenses that consumers do.
While I’ve handled all types of claims, I have always enjoyed working on business-to-business claims the most, which is why we are focused on those types of debts.
What Is the Role of a Collection Agency in the Debt Collection Process?
Before coming to us, our clients will sometimes hire a collection agency to collect a debt, which is fine. Collection agencies are limited, however, in what they can do. They’re not licensed attorneys, so they can’t file a lawsuit for you. They’re limited to writing letters to the debtor and calling them to try to convince them to pay. Sometimes it works, sometimes it doesn’t. Sophisticated debtors know that a collection agency cannot sue them, whereas if they are hearing from a law firm, they know that they might be sued if they do not pay.
We have an advantage over collection agencies in that respect. We can do everything they can do and then go beyond that to file lawsuits and enforce judgments, necessary. I believe that using collection agencies is fine on smaller debts (under $5,000), but we can accomplish far more than agencies on larger debts.
How Large Should a Debt be Before It’s Reasonable to Hire an Attorney and File a Lawsuit?
Dollar-wise, I believe that businesses with debts of $5,000 or less should consider using a collection agency or go to Small Claims Court. In California, corporations and LLC’s can generally go to Small Claims Court to pursue debts that are $5,000 or less (unless a business needs to file more than two claims per year). On these smaller debts, we can generally serve the same function as an agency and write letters and communicate by telephone to try and collect. However, it doesn’t make a lot of sense for us to pursue these smaller claims in court because there’s simply not even enough money involved to justify that level of involvement.
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