After the service of process, a consumer has 20 days to answer the court before a default judgment is filed, but corporations are given 30 days to respond. There are a variety of ways to attempt to collect on a corporate debt. Collectors can freeze the bank accounts of corporations, file a writ to attach inventory or file a writ for a till tap.
When collectors file to freeze a corporate bank account, they usually try to catch the bank right before payroll to get the attention of management quickly.
To attach inventory is rare, but in this case, a sheriff would be dispatched to put tags on inventory at the business’s location. For example, if the judgment was for $10,000, the sheriff would tag enough inventory to equal that amount. Tagged items cannot be sold, and those assets are “frozen.” This would be similar to garnishing the wages of an individual consumer.
Filing a writ for a till tap is another antiquated practice that is rarely used. Again, say the debt owed is $10,000. The sheriff’s department would dispatch a deputy to the store site for the day. The deputy would stand behind the counter and watch the cash register, and at the end of the day, he or she would seize the profits made that day and take it to the collector. This is not necessarily used to collect the entirety of the debt, but to let the business know that you are serious about collecting and that they need to take the appropriate steps to make the debt a priority.
Settlements are often the best way to resolve a corporate debt for several reasons. Large corporations are usually concerned with keeping their names out of the news. A settlement allows the debt to be resolved quickly, without dragging out the process with monthly payments.
While the lender is usually the only person that would not want a settlement, cooler heads normally prevail in this situation. Lenders realize that they are more likely to get the largest amount of their money back by settling.
As we discussed last week, collecting the debt of a corporation is significantly different than collecting the debt of an individual. Over the course of this blog, we’ve discussed at length the authority and regulations of the Fair Debt Collection Practices Act (FDCPA), and this might be the most considerable difference between consumer and corporate debt collection.
A lower degree of compliance is required when dealing with corporate debt. The regulations put in place by the FDCPA do not apply to commercial debts, and even the West Virginia Consumer Protection Act excludes commercial transactions.
As a result, collectors are able to pursue commercial clients more persistently, without fear of violating FDCPA standards or even fear of the nuisance lawsuits that are rampant throughout the industry today. Collectors should still use good business sense when pursuing these interests; however, they are allowed more leeway and flexibility in engaging corporations.
Commercial debtors are also typically held to higher standards in court. Contracts are more strictly interpreted and enforced in terms of interest rates, payment due dates, attorney fees, equipment levees, creditor bills, receiverships, liabilities and other clauses. Any of these may be enforceable and valid but are much less likely to be imposed against an individual consumer.
Lawyers often cite the hypothetical least sophisticated consumer standard when representing individual debtors. This standard was created to protect all consumers (no matter their education level or understanding of their debt or contract) by suggesting that even the least sophisticated consumer would have been deceived or misled by the terminology and true meaning of a given contract. However, it is assumed that corporations would be much savvier in understanding the agreement into which they were entering.
What do you think? Should corporations be held to a higher standard of contractual obligation than individual consumers? Tell us your thoughts in our comment section, and check in next week for the final installation of our series on collecting corporate debt.
Approximately 77 million Americans are in some form of debt. Most debt collection agencies and law firms focus a lot of their time, energy and resources on collecting these retail consumer debts. However, businesses and corporations can also default on loans and mortgages and purchase inventory they cannot afford.
For collectors, compelling a commercial debt can be significantly different than collecting an individual consumer debt (although many firms use the same processes). Depending on the corporate structure, using your tried and true policies and procedures may be the best course of action for continuity for your employees and records.
An important step in collecting a corporate debt is finding the right person to contact. For a small business, it’s usually the owner, but for a corporation or chain, it is typically someone in the accounts payable department. When a collector is researching the appropriate contact, he or she might find that there are actually two debtors: the named corporation and a personal guarantor, an individual who also signed their name to the purchase or contract.
Corporate debts are often easier to collect, and corporations are often more likely to pay than individual consumers. There are fewer restrictions on the collector and often, more money is involved.
However, depending on the size of the debt and the stability of the company, corporate debts also have a shorter life. While a personal debt can be pursued until the debtor passes away (and even then, certain debts are inherited by relatives) or the statute of limitations expires, if a company goes out of business, files bankruptcy or becomes defunct, time expires for the collector.
Over the course of this three part series, we will look at the unique differences and practices involved in the collection commercial debts. Be sure to check in next week for more information!