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WHAT IS THE FIRST THING ONE MUST DO WHEN ATTEMPTING TO COLLECT ON A PAST DUE ACCOUNT?

The first and most critical step in collecting on a past due account is to identify the parties legally responsible for the debt. Pursuing collection from an employee who has no real authority in making decisions or is not legally responsible for the debt is counter-productive because valuable time has been lost in the collection effort. However, knowing all potential parties beyond the primary obligor is of the upmost importance on the ultimate collectibility of an account when the primary obligor has no non-exempt assets that can be reached after obtaining a judgment.

HOW DO YOU KNOW WHO ARE THE RESPONSIBLE PARTIES ON A DEBT?

Identification of the responsible party or parties is first determined by the type of business entity of the debtor organization. Identifying the debtor as a proprietorship, partnership, limited partnership, limited liability partnership, corporation or limited liability company is the first step in finding out all the responsible parties on a debt. Registration of an "assumed name" with the County Clerk's office does not create a business entity. Rather, such a filing and use by a business puts the public on notice of the organization's decision to use a fictitious name. Because the first step in determining the liability of a debt is based on knowing the type of business entity along with the debtor's legal name it is strongly encouraged that creditors identify these issues as part of their normal credit procedures.

CAN ANOTHER PARTY OTHER THAN THE BUSINESS ORGANIZATION EVER BE RESPONSIBLE FOR THE BUSINESS DEBT?

Sometimes. Issues such as signed personal guarantors, undisclosed principals, or the manner in which the debtor signed the contract could create additional liability on a debt and increase the potential for future recovery.

WHAT STEPS CAN BE TAKEN TO COLLECT ON A DEBT AFTER A CREDITOR RECEIVES A JUDGMENT FROM THE COURT?

Execution of judgment and garnishment are two examples of routine post judgment remedies. Some debtor's level of concern raises considerably when a Constable is knocking on the debtor's door demanding non-exempt assets. Additionally, notice from the bank that a debtor's account has been frozen because of a garnishment can also encourage the debtor to make arrangements to pay the judgment. Also available in Texas for use against judgment-debtors is the "turnover statute" found in Texas Civil Practice & Remedies Code.

WHAT IS THE TEXAS TURNOVER STATUTE?

The Texas Turnover Statute is specifically designed to aid a judgment-creditor whose judgment-debtor owns non-exempt property that cannot readily be attached or levied upon by ordinary legal process such as writ of execution or garnishment. It applies to property owned by the judgment-debtor, including present or future rights to property. This statute also provides for the appointment of a receiver with the authority given by the Court to take possession of and sell non-exempt property and pay the proceeds to the judgment-creditor to the extent required to satisfy the judgment.

WHAT ISSUES SHOULD A CREDITOR CONSIDER WHEN DECIDING WHEN NOT TO PURSUE A JUDGMENT?

Understanding the costs involved in pursuing a judgment is one issue that needs to be considered when deciding whether or not to pursue a judgment. Even when attorney fees are contingent upon recovery, additional expenses include court costs and in some cases third party services for investigators, consultants and experts. Further, the creditor should consider the potential expense of defending a counterclaim against his or her business. Additionally, no matter how simple the collection matter may appear, the creditor's personnel must still spend time and attention to documenting the claim and supporting the litigation effort. The amount of time devoted by the creditor's personnel will of course depend upon the value of the claim and whether or not the matter is contested.

Another main issue to be considered in deciding whether or not to pursue a judgment is the likelihood of a recovery from the debtor once you obtain your judgment. Whether or not the debtor is solvent is obviously an important factor in determining the likelihood of a successful collection after judgment. However, sometimes it is very difficult to assess the debtor's true financial picture when the collection problem first materializes.

Finally, a creditor must always consider the risk of losing regardless of the righteousness of the claim.