You just won your case. The judgment order says the defendant owes you a tidy sum, but how do you collect it? Many creditors are under the mistaken impression that all they have to do is walk into court and pick up the cash. Unfortunately, it's not that easy, especially if you're dealing with an uncooperative debtor. The real challenge may lie ahead.
One of the best and fastest means to collect a judgment is through the garnishment procedures. A garnishment allows you to seize the assets of a judgment debtor. While wages and bank accounts are the most commonly garnished assets, any money owed from a third party to the debtor may be subject to garnishment. You could claim the debtor's accounts receivables, promissory notes, and proceeds from the sale of a business or real estate.
Few creditors take full advantage of this legal right. For example, did you know that a debtor's I.R.A. can be garnished? Most debtors who are hiding assets will not secret this and other exposed assets.
Unfortunately, there are limits to what can be garnished. Money payable by the federal government is not subject to garnishment, including the wages of federal employees or money owed to vendors. Furthermore, there are a whole series of specific exemptions which are available to the debtor. See the box below for a few of these exemptions.
Investigate Credit Worthiness
* Call other creditors of applicant
* Call industry contacts
* Check with landlords and credit references
* Obtain a Credit Bureau Report
* Review Dun & Bradstreet Reports
* Study court records for information about: Judgments, pending litigation, title to real estate, liens on realty, and UCC financing statements
* Hire an investigator or attorney Have your CPA review financial records
This brief article is only meant to provide a very broad overview of the issues involved in getting your money after you win in court and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick directly if you need information about your specific situation.
Monday, January 26, 2009
Friday, January 16, 2009
Performance Bonds
Companies in the construction industry should understand performance bonds. Performance bonds differ in many ways from payment bonds. While payment bonds are designed to assure compensation to subcontractors and suppliers, performance bonds seek to secure completion of the project or award of damages to the owner for default by the general contractor.
Performance Bonds Defined
The parties to a performance bond consist of the following: (1) the principal (usually the general contractor), (2) the obligee (the owner), and (3) the surety. In some cases, a performance bond is required of a subcontractor, in which case the principal is the subcontractor and the obligee is the general contractor. Performance bonds are primarily designed to afford significant protection to the owner, while subcontractors and suppliers typically have no rights under such bonds.
Claims are brought by the obligee, when the principal has defaulted on its contract with the obligee - the obligee declares the principal to be in default and notifies the surety. Only then is surety required to act, since premature actions by the surety can result in litigation with the principal.
Actions upon Default
In the event of default by the principal, the surety has several options. It can permit the owner to finish the project and compensate the owner for damages. Or, the surety can finish the project through a new contractor. Or, it can finance the general contractor so the defaulting obligee can complete the contract. The choice depends upon the situation and the players.
Statute of Limitations
While the federal Miller Act states no specific time period within which suit must be brought against a surety, there are federal, state and local time limitations applicable to performance bonds. Virginia Code Section 11-59 requires actions against sureties on performance bonds be filed within one year after completion of the contract, including the expiration of all warranties and guarantees. If the action is for a breach of warranty or defect, then all cases must be filed within one year of discovery of the defect or breach of warranty.
Conclusion
In conclusion, individuals in the construction industry should keep in mind that the rules and principles, which govern the operation of these bonds, are sometimes peculiar to the bonds themselves and the statutes under which they are provided. Therefore, it is important to have a good understanding of the terms of your bond, any applicable statutes, your contract and the facts.
This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick directly if you need information about your specific situation.
Performance Bonds Defined
The parties to a performance bond consist of the following: (1) the principal (usually the general contractor), (2) the obligee (the owner), and (3) the surety. In some cases, a performance bond is required of a subcontractor, in which case the principal is the subcontractor and the obligee is the general contractor. Performance bonds are primarily designed to afford significant protection to the owner, while subcontractors and suppliers typically have no rights under such bonds.
Claims are brought by the obligee, when the principal has defaulted on its contract with the obligee - the obligee declares the principal to be in default and notifies the surety. Only then is surety required to act, since premature actions by the surety can result in litigation with the principal.
Actions upon Default
In the event of default by the principal, the surety has several options. It can permit the owner to finish the project and compensate the owner for damages. Or, the surety can finish the project through a new contractor. Or, it can finance the general contractor so the defaulting obligee can complete the contract. The choice depends upon the situation and the players.
Statute of Limitations
While the federal Miller Act states no specific time period within which suit must be brought against a surety, there are federal, state and local time limitations applicable to performance bonds. Virginia Code Section 11-59 requires actions against sureties on performance bonds be filed within one year after completion of the contract, including the expiration of all warranties and guarantees. If the action is for a breach of warranty or defect, then all cases must be filed within one year of discovery of the defect or breach of warranty.
Conclusion
In conclusion, individuals in the construction industry should keep in mind that the rules and principles, which govern the operation of these bonds, are sometimes peculiar to the bonds themselves and the statutes under which they are provided. Therefore, it is important to have a good understanding of the terms of your bond, any applicable statutes, your contract and the facts.
This brief article is only meant to provide a very broad overview of the complex area involving payment bonds and cannot be relied upon as a substitute for legal advise. Contact Gross & Romanick directly if you need information about your specific situation.
Wednesday, January 14, 2009
Collecting the Professional Debt: Discretion with Aggression
Harry has been a client of your firm for several years. Eventually, you have come to regard him as a trusted client who promptly pays for services rendered. This morning he called you with an urgent message. It seems that he is involved in a large matter and your fees will go well beyond any amount previously billed to him by your firm. If you are successful, you know there will be funds available to cover your fees and costs, but you are not certain it will succeed.
While all businesses have credit extension concerns, professionals have factors to consider that require special considerations. The services of a lawyer, doctor, CPA, architect and other professional are unique and, once engaged, cannot generally be suddenly terminated. The savvy professional improves the chances of avoiding collection problems by conducting prudent credit checks like other businesses, even for existing clients who request more extensive credit.
Prevention
Additionally, the professional should candidly discuss the prospects of success in the enterprise, e.g. the risks of the medical procedure or the likelihood of reversal of the IRS ruling. Explain in detail the estimated fees and what factors can effect these charges. Do not forget to reveal expenses such as photocopies, travel, filing fees, investigations, subcontractors, etc. Tell the client how to keep the total bill down. Very importantly, tell the client when bills are expected to be paid. Not only will these types of explanations allow the client to budget, but it will avoid surprising the client with an unexpectedly large bill.
Do not assume that your client can afford your services. Ask for an upfront retainer even with a good credit history. Bills can be monthly, at project stages or other predetermined dates. For example, architects normally obtain a 5% retainer, 15% upon production of the schematic design, 20% upon detailed sketches drawn to scale, and so on with varying percentages due at specific phases of construction. Put the payment agreement in writing to avoid differing recollections.
Unless the matter is handled on a total contingency fee, the final bill should not be the majority of the account due. The final bill is the most difficult to collect, especially if the work is unsuccessful or the bill is unexpected.
Dunning the Client
When, despite your efforts, your receivables become delinquent, the part of the business that most professionals find disagreeable has to be undertaken. Most lawyers would rather argue before a jury than with a slow paying client. Furthermore, if you too vigorously emphasize prompt payment of bills, your client may feel you are more concerned about your fees than his case. Still a balance must be struck between a too-strident policy, at the cost of a lost client, and one that is too permissive, at the cost of profitability.
When it becomes necessary to go after a delinquent client, the question arises as to how the contact should be made and who in the firm should make it. A carefully edited letter, which is sent soon after payment is due, can be a good reminder. Relationships will not be damaged if regular, reasonable reminders are provided. In some cases a letter will not be sufficient and a telephone call must be made. A call from the professional handling the matter is not advisable because it can tarnish the working relationship and can be very awkward for the professional and the client. The bookkeeper or a secretary, whose duties are removed from the client, should place the call. As a final effort, an associate or partner should speak to the client about the implications of a failure to pay.
Firing the Client and the Fear of Counterclaim
Firing the nonpaying client creates a set of particular concerns to the professional.
1. Do you have the right to discontinue services? For example, can an orthodontist leave complex and potentially dangerous devices in a patient's mouth?
2. Must the client's records, books and your work product be given over?
3. Are you going to be sued for malpractice despite competent efforts to that stage of the work? Should you worry about the next psychologist ruining all the progress and you getting the blame?
Answers to many of these questions can be obtained from professional associations and by reference to ethical codes; get a written opinion for your files.
If you perform your work to the best of your abilities and meet the standards of your profession, sue your former client if they owe you a significant fee. Threats of a counterclaim based upon negligence are usually just a ploy to avoid payment. Of course, you will need some nerve and confidence in your performance, as well as good documentation. Finally, hire a good collection lawyer who can be your professional.
A Final Thought
Remember a line from the classic 1967 movie Cool Hand Luke: "What we've got here is a failure to communicate." If you keep the lines of communication open with your clients, you will establish mutual trust and will probably be rewarded by prompt- paying clients.
***
The above is not meant to replace legal counsel. To speak to an attorney, please contact Gross & Romanick directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.
While all businesses have credit extension concerns, professionals have factors to consider that require special considerations. The services of a lawyer, doctor, CPA, architect and other professional are unique and, once engaged, cannot generally be suddenly terminated. The savvy professional improves the chances of avoiding collection problems by conducting prudent credit checks like other businesses, even for existing clients who request more extensive credit.
Prevention
Additionally, the professional should candidly discuss the prospects of success in the enterprise, e.g. the risks of the medical procedure or the likelihood of reversal of the IRS ruling. Explain in detail the estimated fees and what factors can effect these charges. Do not forget to reveal expenses such as photocopies, travel, filing fees, investigations, subcontractors, etc. Tell the client how to keep the total bill down. Very importantly, tell the client when bills are expected to be paid. Not only will these types of explanations allow the client to budget, but it will avoid surprising the client with an unexpectedly large bill.
Do not assume that your client can afford your services. Ask for an upfront retainer even with a good credit history. Bills can be monthly, at project stages or other predetermined dates. For example, architects normally obtain a 5% retainer, 15% upon production of the schematic design, 20% upon detailed sketches drawn to scale, and so on with varying percentages due at specific phases of construction. Put the payment agreement in writing to avoid differing recollections.
Unless the matter is handled on a total contingency fee, the final bill should not be the majority of the account due. The final bill is the most difficult to collect, especially if the work is unsuccessful or the bill is unexpected.
Dunning the Client
When, despite your efforts, your receivables become delinquent, the part of the business that most professionals find disagreeable has to be undertaken. Most lawyers would rather argue before a jury than with a slow paying client. Furthermore, if you too vigorously emphasize prompt payment of bills, your client may feel you are more concerned about your fees than his case. Still a balance must be struck between a too-strident policy, at the cost of a lost client, and one that is too permissive, at the cost of profitability.
When it becomes necessary to go after a delinquent client, the question arises as to how the contact should be made and who in the firm should make it. A carefully edited letter, which is sent soon after payment is due, can be a good reminder. Relationships will not be damaged if regular, reasonable reminders are provided. In some cases a letter will not be sufficient and a telephone call must be made. A call from the professional handling the matter is not advisable because it can tarnish the working relationship and can be very awkward for the professional and the client. The bookkeeper or a secretary, whose duties are removed from the client, should place the call. As a final effort, an associate or partner should speak to the client about the implications of a failure to pay.
Firing the Client and the Fear of Counterclaim
Firing the nonpaying client creates a set of particular concerns to the professional.
1. Do you have the right to discontinue services? For example, can an orthodontist leave complex and potentially dangerous devices in a patient's mouth?
2. Must the client's records, books and your work product be given over?
3. Are you going to be sued for malpractice despite competent efforts to that stage of the work? Should you worry about the next psychologist ruining all the progress and you getting the blame?
Answers to many of these questions can be obtained from professional associations and by reference to ethical codes; get a written opinion for your files.
If you perform your work to the best of your abilities and meet the standards of your profession, sue your former client if they owe you a significant fee. Threats of a counterclaim based upon negligence are usually just a ploy to avoid payment. Of course, you will need some nerve and confidence in your performance, as well as good documentation. Finally, hire a good collection lawyer who can be your professional.
A Final Thought
Remember a line from the classic 1967 movie Cool Hand Luke: "What we've got here is a failure to communicate." If you keep the lines of communication open with your clients, you will establish mutual trust and will probably be rewarded by prompt- paying clients.
***
The above is not meant to replace legal counsel. To speak to an attorney, please contact Gross & Romanick directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.
Monday, January 12, 2009
The Statute of Frauds: It's Not What it Sounds Like (What you should put in writing)
Based on its name you might think that the Statute of Frauds has something to do with criminal or civil fraud, but it doesn't. The name "Statute of Frauds" actually refers to a law passed by the British Parliament in 1677, and the name has been retained through the centuries. It specifies which kinds of contracts must be in writing in order to be enforceable. Its purpose is to prevent the setting up of supposed agreements and then supporting them by perjury.
The most common applications of the Statute of Frauds are as follows:
* Holding a person responsible for the promise to pay the debt of another
* Contracts for the sale of real estate
* Leases for real estate over 1 year
* Agreements which cannot be performed within 1 year
* Sale of personal property over $5,000
* Sale of goods over $500, unless the buyer accepts the goods
* Agency agreements
While the Statute requires a written agreement, almost any writing sufficient to indicate some kind of agreement between the parties will suffice. However, the "writing" must be signed by the party who is being charged. Thus, the venerable Statute of Frauds is still an important and influential part of modern law.
***
The above article is not meant to replace legal counsel. To speak to one of Gross & Romanick's attorneys please contact them directly by filling out their online form, email them at law@gross.com, or call (703) 273-1400.
The most common applications of the Statute of Frauds are as follows:
* Holding a person responsible for the promise to pay the debt of another
* Contracts for the sale of real estate
* Leases for real estate over 1 year
* Agreements which cannot be performed within 1 year
* Sale of personal property over $5,000
* Sale of goods over $500, unless the buyer accepts the goods
* Agency agreements
While the Statute requires a written agreement, almost any writing sufficient to indicate some kind of agreement between the parties will suffice. However, the "writing" must be signed by the party who is being charged. Thus, the venerable Statute of Frauds is still an important and influential part of modern law.
***
The above article is not meant to replace legal counsel. To speak to one of Gross & Romanick's attorneys please contact them directly by filling out their online form, email them at law@gross.com, or call (703) 273-1400.
Friday, January 9, 2009
The Diamond Ring and A Few Peculiar Exemptions - What Creditors Cannot Seize
A fellow being chased by creditors would be smart to give his fiancee' an expensive engagement ring. She'll be thrilled, and he'll be making a safe investment, since Virginia law specifically exempts wedding and engagement rings from attachment by creditors. Lawmakers have decided that, for public policy reasons, people should keep such property in the family. Better not divorce!
A religious couple might consider investing in a Guttenberg Bible, since the law also exempts the family Bible.
Animal lovers can rest easy, too. Creditors can't take the family pet, whether it's a dog, cat, squirrel or snake. As long as the debtor does not raise the animal for sale purposes, the creditor cannot take it.
Someone facing bankruptcy might not be in the frame of mind to dwell on mortality, but it's an opportune time to purchase a burial plot. The law also exempts this property as a matter of policy. Who said you can't take it with you!!
Investigate Credit Worthiness
* Call other creditors of applicant
* Call industry contacts
* Check with landlords and credit references
* Obtain a Credit Bureau Report
* Review Dun & Bradstreet Reports
* Study court records for information about: Judgments, pending litigation, title to real estate, liens on realty, and UCC financing statements
* Hire an investigator or attorney Have your CPA review financial records
***
The above article is not meant to replace legal counsel. To speak to an attorney, please contact Gross & Romanick directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.
A religious couple might consider investing in a Guttenberg Bible, since the law also exempts the family Bible.
Animal lovers can rest easy, too. Creditors can't take the family pet, whether it's a dog, cat, squirrel or snake. As long as the debtor does not raise the animal for sale purposes, the creditor cannot take it.
Someone facing bankruptcy might not be in the frame of mind to dwell on mortality, but it's an opportune time to purchase a burial plot. The law also exempts this property as a matter of policy. Who said you can't take it with you!!
Investigate Credit Worthiness
* Call other creditors of applicant
* Call industry contacts
* Check with landlords and credit references
* Obtain a Credit Bureau Report
* Review Dun & Bradstreet Reports
* Study court records for information about: Judgments, pending litigation, title to real estate, liens on realty, and UCC financing statements
* Hire an investigator or attorney Have your CPA review financial records
***
The above article is not meant to replace legal counsel. To speak to an attorney, please contact Gross & Romanick directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.
Monday, January 5, 2009
Tenancy by the Entirety: Another Reason to Say "I Do"
The ancient Common Law considered a husband and wife to be one person for purposes of property ownership. Both husband and wife were held to have a "tenancy by the entirety" in all the property that they jointly owned. Modern Virginia law has largely abandoned this characterization of a married couple as a single legal entity, but the peculiar legal arrangement of tenancy by the entirety still exists.
If husband and wife hold property in a tenancy by the entirety, the joint property is completely immune to the claims of a creditor of one spouse alone. Only a creditor of both husband and wife may subject the property to a lien or judgment. Virginia law allows virtually any kind of property to be held as a tenancy by the entirety, not just real estate. In the case of Pitts v. U.S., the U.S. 4th Circuit Court of Appeals held that the proceeds of a sale of real estate which was held by a tenancy by the entireties are likewise considered to be held by the entireties, even if the proceeds are in some form other than cash, such as deed of trust note.
Joint bank accounts are governed by special rules that do not recognize a tenancy by the entirety per se but do afford some protection to married couples. Virginia law presumes that joint bank accounts are divided equally between husband and wife, even if one spouse has deposited a substantially greater amount than the other. This means that a creditor of a single spouse generally can only assert a claim against one half of the amount in the joint account, even if the other spouse has deposited much more in the account.
***
The above is not meant to replace legal counsel. To speak with an attorney, contact Gross & Romanick directly by filling out their online form, emailing law@gross.com or calling (703) 273-1400.
If husband and wife hold property in a tenancy by the entirety, the joint property is completely immune to the claims of a creditor of one spouse alone. Only a creditor of both husband and wife may subject the property to a lien or judgment. Virginia law allows virtually any kind of property to be held as a tenancy by the entirety, not just real estate. In the case of Pitts v. U.S., the U.S. 4th Circuit Court of Appeals held that the proceeds of a sale of real estate which was held by a tenancy by the entireties are likewise considered to be held by the entireties, even if the proceeds are in some form other than cash, such as deed of trust note.
Joint bank accounts are governed by special rules that do not recognize a tenancy by the entirety per se but do afford some protection to married couples. Virginia law presumes that joint bank accounts are divided equally between husband and wife, even if one spouse has deposited a substantially greater amount than the other. This means that a creditor of a single spouse generally can only assert a claim against one half of the amount in the joint account, even if the other spouse has deposited much more in the account.
***
The above is not meant to replace legal counsel. To speak with an attorney, contact Gross & Romanick directly by filling out their online form, emailing law@gross.com or calling (703) 273-1400.
Friday, January 2, 2009
Lease Survives Bankruptcy Rejection
An individual who owned a business filed a personal Chapter 7 Bankruptcy. The business remained at the premises and continued to pay the rent, but the bankruptcy trustee failed to accept the Lease. Under bankruptcy rules such failure is an automatic rejection of the Lease. The Landlord filed a Motion to Lift Stay to eject the business from the space based upon the rejection of the Lease.
The Court ruled that the rejection of the Lease on behalf of the bankruptcy estate was not a termination of the Lease. So long as the debtor did not default on the Lease, the Landlord could not evict the business. Federal Realty Investment Trust v. Park, U.S. Bankruptcy Court for the Eastern District of Virginia (2002)
***
To seek legal counsel or to speak to one of Gross & Romanick's attorneys, please contact the firm directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.
The Court ruled that the rejection of the Lease on behalf of the bankruptcy estate was not a termination of the Lease. So long as the debtor did not default on the Lease, the Landlord could not evict the business. Federal Realty Investment Trust v. Park, U.S. Bankruptcy Court for the Eastern District of Virginia (2002)
***
To seek legal counsel or to speak to one of Gross & Romanick's attorneys, please contact the firm directly by filling out their online form, emailing law@gross.com, or calling (703) 273-1400.
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