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My Business Is Owed a Debt: What Are My Rights?

July 27, 2020
woman on the phone looking at paperwork

Seeking Overdue Payment

If your small business is seeking payment from an overdue account, you may be left wondering how to get paid. You’re entitled to the money but could be unsure what steps you can take or just how far you can press things. Plus, you don’t want to run afoul of any laws or ruin your otherwise good reputation by exceeding legal or ethical boundaries. Understanding what measures, you can take is the first step towards settling outstanding claims. 

Most likely, the debt you’re owed is money agreed to be paid by a customer, for some goods or services, that aren’t forthcoming. As a creditor, you may send demand letters outlining what you’re owed and when it must be paid, as well as make phone calls to the indebted individual or business. It might seem ineffective, it’s part of an overall approach and also important to remind debtors that you are resolute on the point of being paid, and not likely to drop the matter as they might hope.
 

What Qualifies as a Secured Transaction?

However, if the debt in question is a loan or an installment payment plan, it may be the case that this qualifies as a ‘secured transaction’. In essence, the customer, as a borrower or debtor, puts up some property against the repayment of the loan as collateral and if they fail to pay back the loan on time or in full, the creditor can take that property as payment. For example, a customer buying a vehicle would either take a loan with the bank or the car dealer.  In the case of an installment plan, often used for home furniture, the item purchased can be repossessed, which again may provide the business an alternative to collecting the money. It’s a collateral system that we’re all familiar with but as a business owner who has extended this type of secured transaction credit likely using legal contracts, seeking advice on the specific steps from an attorney for recovery is advisable.

It’s worth noting that, when pursuing debts, small businesses aren’t bound by the Fair Debt Collection Practices Act, which governs what measures debt collection agencies and debt-purchasing firms are able to employ in seeking repayment from debtors. Not being bound by law doesn’t mean that a business should feel free to engage in otherwise unethical behaviors; instead, you should seek to find means that are fair while still assertive in their approach.
 

Hiring a Debt Collection Attorney

If your calls and letters are not effective, you also have the right to take legal action. Hiring a debt collection attorney can potentially help you avoid having to go to court to collect in the first place. However, should the issue prove unsolvable, a lawyer can guide you through the court process and work the case while you continue to manage day-to-day business. Your lawyer can seek several remedies: 

  • Your attorney can also choose to pursue a lawsuit to try and recover the money that your business is owed. Should you win the lawsuit, the customer as a debtor will be forced to pay per the court’s judgment and may be subject to a lien or garnishment.
  • A lien is a claim placed against a debtor’s property by the court to ensure repayment to a creditor; if the debtor fails to pay you back the debt, you are permitted to seize and sell that property in order to recoup the full amount of the money owed. 
  • Garnishment is a procedure wherein a debtor’s wages are withheld in some portion, with that allotment going towards the creditor until the debt is fully satisfied. Garnishments are limited to no more than 25 percent of a person’s paycheck, so if the debt is significant, it may take time to collect the entire amount of the debt.
  • A replevin action may be used to seek the physical return of specific property from the debtor; in this case, the item or good that you sold to the debtor and have not been paid for is returned to you, with the assistance of law enforcement, if necessary. 
  • An attachment action seizes a debtor’s qualifying property to be held in legal custody until the end of the trial, in the event that it needs to be liquidated to pay off the creditor. Your attorney can seek an attachment action if they fear the debtor will try to move or hide assets to avoid repayment.   

A court case is likely not the ideal outcome for any party, which should serve to motivate both parties to find a resolution before the matter escalates to that level. Just as you’re within your rights to demand immediate full payment, you can also choose to work with clients that are willing to pay but are currently unable. Partial payment or payment in installments is better than nothing, and preferable to a long, drawn-out court battle, if possible. Obviously those customers skipping out on invoices require a firmer hand and the threat of legal action, but it might not be the case that every past-due bill is because of malfeasance and not business or cash-flow problems.
 

Speak with a LegalShield Attorney Today

An outstanding invoice is a concern for any business, and particularly for those without the budget to withstand the loss of income that should otherwise be there. Fortunately, you have rights and options when it comes to collecting on debt to ensure that you get what you’re owed, even if you have to go to court. Not every business is sure where to start when it comes to debt collection, or what the right steps to take are. Small business plans start at $39 a month.

LegalShield provides access to legal services offered by a network of provider law firms to LegalShield Members through member-based participation. Neither LegalShield nor its officers, employees or sales associates directly or indirectly provide legal services, representation or advice. See a plan contract at www.legalshield.com for specific state of residence for complete terms, coverage, amounts, and conditions. This is not intended to be legal or medical advice. Please contact a medical professional for medical advice or assistance and an attorney for legal advice or assistance.

Speak with a LegalShield Attorney to Discuss How to Resolve Your Debt Collection Issue.