Wednesday, January 09, 2013
|From an Asset Recovery Expert:
Top 5 Signs It's Hopeless
The V.P. of Kreller’s Asset Recovery Division, Jennifer Hudgens suggests in some cases to heed the advice of the “ol Gambler” Kenny Rogers:
“You got to know when to hold ’em, know when to fold ‘em
Know when to walk away and know when to run…”
As a global collection agency, we know all kinds of strategies to get your debtors to pay. We’re experts on debtor psychology, privy to resources that obtain results, even when most credit managers see possible payment as a lost cause.
However, we’d like to share how we identify when it really is a lost cause—where pursuing the debt further is actually incurring more loss for your company than it is worth.
The Top 5 signs it is time to walk away…
1) A sole proprietorship goes out of business and you have no personal guarantee. This can apply to an M.D. or Dentist who goes out of business and does not pay for goods or products, or a one-man shop like a small convenience store. In these cases, where the company is the owner, if you do not have a personal guarantee that the individual is liable for the debt—even if the company goes under—then by The Fair Debt Collection Practices Act, you cannot sue them as a private individual.
2) The company does not have the assets to satisfy your lien. This might seem obvious to some, but it’s not worth going to court when the asset search shows there’s virtually no assets, or if the existing secured creditors (such as a recent bank foreclosure or an IRS garnishment) have left nothing left to go after. Don’t spend good money only to receive a worthless paper judgment that cannot be satisfied.
But, one word of advice. If the company states they’re in dire straits and that they’re closing up shop, but you find no official Chapter 11 filing nor see any notice of such— it is worth it to call every three months to see if circumstances have changed. Our drop unit does just that and I am always surprised by the payments we get from resurrected debtors I never thought would pay. Sometimes the creditors lay low for 5 months then return hoping the creditors owed funds will have given up.
3) If the case is heavily contested and legal is the last option. I've had many cases where the debtor comes back with a long list of specific reasons why they think they are owed more money than our client is owed. Now I am not talking about the usual excuses such as “the goods were damaged” with no proof, or “we lost money too,” etc. I refer to the cases where I get numbered photographs of damaged goods from the debtor along with contract copies where their attorney has circled which clause was violated. The debtor refuses to pay and says “If you sue me I will countersue your firm and win.” In some cases, both sides have a fair legal position, and if you are not 100% sure that you have an open and shut case, and the amount in question is not a large loss to your firm, then, in my experience, it is better not to sue due to the costs of a contested trial, as the time involved, and of course the 50/50 outcome that you could lose, might cost your company more money, on top of the debt itself. In these cases, I recommend to consider arbitration as your last option if all else fails. Often, the two attorneys from both sides can meet at arbitration court and find a common ground to settle. We have found this method to be very successful for us, and final settlements are often a very nice percentage of the total debt.
4) If a company has gone through an asset only buyout. Sometimes a company has accumulated more debt than the assets of their company are worth, so they sell off only the asset portion to another firm. If the firm has not purchased the entire company (the liabilities) then you legally cannot sue the new owner. We sometimes receive partial settlements from new owners, wanting to keep goodwill in lieu of future potential business, but legally they are not liable—so if they refuse to deal with you a lawsuit will not benefit your firm.
5) The suits, liens, and judgments listed on a recent credit report far exceed the assets of the company. It is disheartening to receive a collection and find out that you need to get in line behind 20 other companies that already have a judgment in place. You can do the math. If all judgments are satisfied, and there is nothing left, in reality, you’re too late. The company will close its doors long before they get to you. We refer to these situations as DOAs (Dead on Arrival). The only way to avoid this situation is to aggressively go after files past the 90-120 days mark. I cannot tell you how many files we get that are years old, and we’re simply too late to get our piece of the pie. It is also important to be aware of the statute of limitations in some countries. In the USA it is usually 6-7 years. Do not let your debts get old with false promises, or fear of burning the bridge with a “good client”. Good customers pay their bills.
Have any questions? Know of any open cases that aren't hopeless? We can help you out.