Archive for 2014

Do It Yourself Debt Collection

Many times, businesses have accounts that they cannot collect through informal means, such as calling their customers or writing demand letters. They then seek advice from a lawyer. The problem is that the amount of money at stake often does not justify hiring an attorney to file suit.

If someone owes you or your business a debt in the $500-$1500 range, I can help you file the case in magistrate’s court, where you can try the case yourself. I can help you prepare the paperwork to file the lawsuit and give you some hints about handling the case when it comes to trial. Most often I will only charge you $100 to $150.


Put Your Contracts In Writing

I have been told of a time, long, long ago, when it seems that all but the most complex agreements were done “on a handshake”. Back in those days, you could believe what somebody told you and you didn’t have to put the details in writing. A man’s (or a woman’s) word was his or her bond.

I don’t think those days really ever existed.

It has never been a good idea to leave the details of a business arrangement unwritten – that’s one thing that has kept lawyers in business and lawyers have been around for a long time. One of the other party doesn’t have to be a crook – perfectly honest people may have differing memories of the details of a contract. That’s why it always has been important to put your business deals in writing.

The writing doesn’t have to be long or in legalese language. It can be as simple as:

Bobby agrees to sell to Billy, and Billy to buy from Bobby, a 1965 Ford Mustang, serial number 1234567. The purchase price is $10,000, to be paid in cash. Billy buys the car “as is”.
Signed: Billy and Bobby

It’s very tempting to do business with old friends or relatives on a handshake basis. We all do it sometimes, but the better practice is to draw up a simple contract. The best reason is, if your old friend or relative should pass away the day after the deal is made, you don’t know who you’ll be dealing with in trying to get the contract fulfilled. It’s really a favor to everyone to have the deal put in writing.

You can write up a lot of contracts by yourself, but for things like leases or purchases involving a substantial amount of money, it’s worth it to spend $100 or so on a lawyer to draft the contract for you.


No Good Deed Goes Unpunished, Or, Lending Money To Family, Friends Or Employees

Hank is a savvy businessman. A self-made man, he knows the value of a dollar, and cannot be taken advantage of in a normal business deal. However, his big weakness is that he has a generous heart. Especially if you have known him for a while, Hank will lead you some money and is not too strict in making you repay it. Although it has happened several times, Hank is always genuinely surprised when people do not pay him back as they said they would.

It is surprising how many otherwise frugal individuals will lend hundreds or even thousands of dollars to family, friends, employees or business associates without taking any steps to protect themselves. Of course, I’m not talking about gifts. A gift is where you give somebody money and don’t expect to be repaid. I’m talking about where your buddy Joe wants to open a garage and needs $5000 to buy a used hydraulic lift. Or where cousin Sammy finds out about a can’t miss investment opportunity, or where the switchboard operator at your office is going through a divorce and needs rent money. Sometimes you just can’t say no.

If you really do expect to get your money back, you should at the very least get the borrower to sign a promissory note setting out how much money you are lending them, and any terms as far as interest and when they have to pay you back. Unless you include a statement that they have to pay your attorney’s fees if you have to take them to court to collect the money, you will not be able to recover these fees. Also, it doesn’t do any good to get the note signed if you are not going to act promptly to collect the debt. Once they fail to pay as agreed, the Statute of Limitations in South Carolina is three years – so once they failed to pay as agreed, you have a maximum of three years to file a lawsuit to collect the debt, or it’s like you never lent them the money.

A lawyer with experience in diplomatically dealing with debtors to set up an enforceable payment plan is about the best friend you can have when being a Good Samaritan comes back to bite you.


Recovering Interest And Attorney’s Fees In South Carolina

Many people assume that if a person owes you money, they also owe you interest and attorney’s fees if you have to hire a lawyer to collect what is owed to you. This is not true.

In South Carolina, there are only two situations when you are entitled to recover interest and/or attorney’s fees in addition to the principal amount you are owed on a debt. The first situation is when you have a written contract with the other party; in other words, you cannot recover interest or attorney’s fees on an oral contract. If you want to recover interest, the contract must state that if payments are not made on time, interest at a specific rate will be charged on the unpaid balance. If you want to recover attorney’s fees, the contract must state specifically that if you have to hire a lawyer to collect the debt, the other party must pay your reasonable attorney’s fees. What are reasonable attorney’s fees is up to the court.

The second situation is where a statute allows attorney’s fees to the successful party in a lawsuit. One such statute is the Mechanic’s Lien statute (Section 29 – 5 – 10, et seq., SC Code), which allows parties who furnished labor or materials for the improvement of real estate to put a lien on the real estate if they are not paid.

Even if you have loaned a large amount of money to another person and have a written note from that person promising to repay the debt, unless the written note contains language specifically allowing you to recover interest and/or attorney’s fees, you cannot recover them.


South Carolina Is A Great Place To Be A Debtor

Different states have different rules when it comes to debt collections. Some states allow creditors to garnish a debtor’s wages to recover on judgments for things like credit card debt. In South Carolina, your wages can only be garnished for taxes and child support.

Also in our state, if you own and occupy a home, at present the first $56,000 of equity (per owner!) Is exempt from judgment creditors. In other words, if you and your spouse own a home that is worth $400,000 and you owe $300,000 to the bank on your mortgage, your home is protected from your creditors, because you and your wife have another $112,000 in exemptions on top of the amount you owe to the bank.

Some states allow creditors to assert a lien against a debtor’s bank account by serving a levy on the bank, without having to give notice to the debtor. Whatever the debtor has in the bank would be frozen and the creditor would be able to have that money paid over to it to apply toward the debt. Such is not the case in South Carolina. Before a creditor can get access to a bank account, a hearing (with advance notice to the debtor) must be held and a court order obtained to have the money paid toward the debt. Obviously, most debtors, once they receive notice that a hearing is coming, will clean out their bank accounts prior to the date of the hearing, so there will be nothing there for the creditor to get.

A judgment in South Carolina is only good for 10 years – after that it goes away. Some states allow creditors to renew judgments.

A judgment is still a good thing to have, but it does not guarantee that the creditor will get paid.


Who Is This LLC And Why Won’t He Pay My Bill? Or, Why You Should Try To Get A Personal Guarantee In Your Contracts.

Any business just starting out is wise to incorporate. There are many different forms of corporations, mostly distinguished by the particular tax advantages each form offers to the incorporators. One of the most common forms of incorporation for small businesses is the LLC or Limited Liability Company.

One advantage that all forms of incorporation share is that they normally shield the individuals who form the corporation from personal liability for the debts of the corporation. In other words, if Billy Joe and Bobbie Sue decide to go into business, they may form a small corporation, known as Take The Money And Run, LLC (hereafter, TTMR, LLC). If you are a vendor who sells goods or services to TTMR, (Let’s say your company’s name is Bobby Mac, Inc.), they will be more than happy to sign your credit application on behalf of the LLC. That way, if they should fail to pay you, your only recourse is against TTMR, LLC which, if Billy Joe and Bobbie Sue are smart, will have no assets. In other words, they (figuratively) run off to Mexico and you are stuck.

Understanding that we who are in business have the main goal of making sales of our services or products, we cannot always be sure that the new customers we are dealing with will be reliable in making payments. It is also impossible to be paid in advance in all circumstances. One way to try to protect yourself as a supplier is to require the owners of the corporation to personally guarantee the payment of the contract.

In our example above, it would be a matter of requiring Billy Joe and Bobbie Sue to personally guarantee (in writing) that you will be paid. That way, even if the LLC has no assets, you can pursue the owners to try to get paid – assuming of course that they have any assets from which you can recover. This is not always practical – no customer wants to sign a personal guarantee, and if you are in a competitive business and are desperate to make sales, you may have to accept some risk by accepting a signature on behalf of the LLC only.

The other key would be to observe your own credit limits – if your contract provides that TTMR has a $2000 credit limit, abide by it. Don’t let them get into you for $4000 or $5000 before you realize you aren’t getting paid.




Confessions of Judgment: A Useful Creditor Remedy

Confessions of Judgment (COJs) are recordable instruments in which a debtor acknowledges owing a debt and agrees that a judgment may be entered for that amount. Sometimes, when a debtor has no funds, he will agree to a judgment being entered with no contingencies. The more useful situation, from a creditor’s standpoint, is when the debtor wishes to make payments toward retiring the debt and is willing to sign a COJ that the creditor can hold as security. In other words, as long as payments are being made, the COJ is held by the creditor; if the debtor defaults in payment, the COJ is filed as a judgment, giving the debtor credit for any payments made against the amount of the judgment. It then becomes a lien against any real estate the debtor owns in the county where the COJ is filed.