How to collect a past-due debt from a client

Posted on February 18, 2010 by Sharmil McKee

I received this question by email:

A business owes my business money for products that we sold. How do we collect our money and how do we find out if the business is closing?

This is my answer: You have a couple of avenues to collect a past-due debt. You can try letters, phone calls, emails. You can hire an outside agency to collect on your behalf. You can sell the debt to another agency. You can hire an attorney to collect on your behalf. You can report the debt to the three credit reporting agencies (there is a fee involved). You can always sue them in court. Once you have a judgment, you have more options to collect your judgment such as seizing bank accounts and assets. In addition, judgments are reported to credit reporting agencies for free. Finally, if the judgment is large enough, the law permits you to force your client into bankruptcy.

The best way to determine if a business is closing is to search the bankruptcy filings. You can search all federal dockets through PACER (Register here http://pacer.psc.uscourts.gov/). In addition, you can search the Department of State‘s business register. All businesses (except solo proprietors) are required to register with the Department of State prior to conducting any business in the state. Those same businesses are required to notify the state if they are dissolving. (Visit http://dos.state.pa.us to search the business filings.)

If the business is a corporation, it is required to run a public notice in the newspaper that it is dissolving. Most newspapers offer an online version of its public notices. The newspapers in Pennsylvania have reportedly collaborated to form http://pa.mypublicnotices.com You can search this site for any public notices about your client.

Do you have a legal question? Send your question to us at http://wp.me/PN9wo-gz

Good luck.

Sharmil McKee | Business Lawyer | blog@mckeeoffice.com

How to collect a judgment in Pennsylvania

Posted on June 23, 2009 by Sharmil McKee

Judgment creditors lost a battle today. The Pennsylvania Superior Court held that a judgment creditor may not receive a debtors interest’s in a Limited Liability Company, unless the LLC’s operating agreement allows it. A judgment creditor is a person who won a court order declaring that the defendant owes that person a certain sum of money. A person’s interest in an LLC is called a membership interest. The law treats membership interests as personal property that encompasses two rights—the right to manage the company and the right to receive a portion of the profit. A judgment creditor is only entitled to money to satisfy a judgment. If the law permitted a judgment creditor to receive a debtor’s interests, the creditor would receive more than just money; it would receive the right to manage and govern the company. Thus, under the Pennsylvania Limited Liability Company Law, a judgment creditor is allowed to attach any future profits the debtor may earn, but that is all. Zokaites v. Pittsburg Irish Pubs, 2008 Pa Super 281 (2008).

So, if someone owes you or your company, what does this case mean to you? First, you need a copy of the company’s Operating Agreement. Operating Agreements are contracts between the members of an LLC. You can acquire a member’s interests, if the contract allows a member to involuntarily transfer his/her interest to you. If the company filed it with the Pennsylvania Department of State, you can purchase a copy and download it directly from the Department’s website. Or you can Request the Production of Documents through discovery. Read the Operating Agreement to determine the procedure for transferring membership interests. If you do not understand the Operating Agreement, contact your attorney for a translation.

If the Operating Agreement does not permit a member to involuntarily transfer his/her interests, then you can attach the member’s portion of the profit. The procedures for attaching profits are similar to attaching a debtor’s bank account. Once the company is attached, they are under court order to send the member’s profit to share to you.

Though the law limited your ability to acquire a member’s interest in a company, you have many other methods to collect your judgment. We offer free consultations regarding this and others legal issues. Call today or chat online, privately, with an attorney every Monday through Friday from 8 a.m. to 8 p.m. at www.mckeeoffice.com

Sharmil McKee

Business Lawyer

blog@mckeeoffice.com

McKee Law Office

245 W. Allens Lane

Philadelphia, Pa 19119

215-242-5260 (office)
1-877-273-0749 (toll-free)
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http://www.mckeeoffice.com

They borrowed money from me. How do I get my money back?

Posted on November 17, 2007 by Sharmil McKee

Today I received an email through this blog from someone needing legal direction. Basically, the visitor lent his wife’s family $100,000 to help save the farm. Well, it looks like the family is going to lose the farm anyway. The bank sent a notice that it will begin foreclosure in 10 days. The visitor wants to know how can he get his money back? Can he place a lien on the farm? Or does he have to wait until the family files bankruptcy to get my money?

This is what I emailed him:

You should go see a lawyer for specific help, but I want to answer your question. I am not sure what state you are located in and your state may have very specific steps for liens and foreclosures. But, I will explain the process in general terms.

BTW, you used the term “lien”. Generally, you are only entitled to a lien on a property once you have a judgment. I assume that you have not sued the family for the $100K. So, what you have is a mortgage.

You can record your mortgage now. Recording a mortgage is like recording a deed. Hopefully you have a loan agreement and your loan agreement specifically states that the property is collateral. Otherwise, you are an unsecured creditor (like a credit card) and you can only sue in court to get your money back.

Assuming you have a mortgage (and you are not an unsecured creditor), your mortgage will come second to the bank’s mortgage, because you recorded it second. If the bank forecloses and wins in court, the next step is the property will be sold at a Sheriff sale to pay the judgment. As long as you lodge notice as an outstanding creditor, and the sale generates enough money to satisfy the first mortgage (the bank), then you will receive whatever is left over to satisfy your mortgage. I am also assuming that the property does not have other liens and the family has paid all taxes.

The family at any time can file for bankruptcy. This will halt any lawsuit or foreclosure proceedings. If they file bankruptcy, make sure you file a Creditor Notice with the Bankruptcy Court to be listed as a creditor. You will need to attach proof that the family is legally obligated to repay the $100K.

It’s a pretty complicated process and you must act quickly to protect your rights. First, talk to your wife. You will need her to back-up your story that the $100K was a loan, and not a gift. Then talk to an attorney.