The Importance of Persistence and Litigation in Commercial Collections: A Case Study
It is important that debt collectors be persistent as debtors are often evasive. This persistence paired with the possibility of impending litigation is often the necessary combination to get reluctant debtors to resolve their debts. This case study is an example of how this winning combination resulted in successful collections.
The debtor in this case is a software company in the food business. The company owner was also the guarantor for the loan. The creditor is a factoring company. The amount owed was $430,000.
Our Managing Lawyer reached out to the owner/guarantor of the business. She acknowledged the money due, but stated she was having cash flow problems. Our Managing Lawyer said he understood and would work with her, but we need to get a payment plan in place. Our Managing Lawyer said we want to settle the matter amicably, but, if not, we would commence litigation.
The debtor then agreed to enter into a settlement agreement. Under this agreement, she made $30,000 of payments and then the rest of the agreement was breached. We reached out to the owner/guarantor to get back on the payment plan, with numerous communications being ignored. Finally, our Managing Lawyer gave a deadline to get back on the settlement plan or else litigation would ensue.
The debtor did not comply, so we initiated litigation by engaging our local counsel partner to draft and file a complaint. After many attempts, the debtor company was served, but not the guarantor as she was moving around. The debtor company did not respond to our complaint, so we could have decided on a default judgement. However, at this point, we decided it was best to wait to get the guarantor served so that both could be part of the same litigation. .
Along with local counsel, we devised a strategy to serve the guarantor through social media and filed a motion with the court to do that. Our client saw that the guarantor was very active on social media and sent her a message saying that it might be in her best interest to call us to settle the matter. Our Managing Lawyer then reached out to her and explained that the debtor company was served, and we could move forward with a default judgment against the company and due to the difficulty serving her then add her to the complaint once she was served.
This motivated the owner/guarantor to want to settle the matter. We entered into settlement discussions wherein, under the terms of her loan agreement, we now expected to collect interest on the loan, making the total payoff amount $525,000. Thus $495,000 was still owed. After deliberation with her advisors, the guarantor agreed that the interest was owed given the circumstances. She then entered into a payment plan to pay off the $495,000 over five months and complied with this plan.
Collection Tip
There are several take aways from this case study. First, debt collectors must be persistent in reaching out to and tracking down debtors who have defaulted on their debts and/or settlement agreements. In this case, social media was a helpful tool in getting in touch with this debtor and that may become more and more common given the pervasiveness of social media. Additionally, persistence coupled with the initiation of litigation can be the tipping point that causes a reluctant debtor to agree to pay back a debt. Lastly, when a debtor defaults on a settlement agreement, often the financing agreement calls for additional interest to be added. Again, enforcement of this is facilitated by having a lawsuit in place.
Who is TCLG?
The Collection Law Group ("TCLG") is a collection of attorneys who specialize in commercial debt collection on a contingency basis. TCLG is more effective than traditional collection agencies because they utilize an “attorney driven approach” to resolve past due accounts receivable. TCLG clients say their “attorney driven approach” yields faster and higher recovery amounts than other methods.