Let’s talk debt, baby. Common sense procedures for collecting a debt in North Carolina.

Kerri SiglerFormer Partner at Wait Law, P.L.L.C.

There’s more to debt collections than meets the eye. Before you toss a whole lot of good money after bad hiring an attorney to collect, here are a few things to consider:

Debt collections come in two varieties:

(1) someone officially owes you money; or (2) someone unofficially owes you money.

The First Boat (it’s usually the one with a hole in it): You or an attorney have already filed suit in court and convinced a judge to agree that someone owes you money. The judge signed a judgment for the amount owed, plus interest, and that judgment is now on record against the debtor (the person who owes you money) for 10 years. It’s racking up interest. That’s great, right? Not so much.

If you’re in the first boat, odds are the person who owes you money owes you because they have no money. They let you get a judgment against them, and judgments are bad. They stick to your credit score like an obstinate piece of gum on the bottom of your favorite Converse All-Stars. Judgments prevent you from buying or selling a home or car, getting a credit card or loan, etc. And they stick for 10 years . . . 10 renewable years.

Anyone willing to have that kind of proverbial gum stuck to them probably has no money and doesn’t care. If they cared, they would have paid you, even if it took a while to do so. So before you release your legal hounds to track the debtor through the woods and chew the wallet right out of his pocket, ask your attorney to do some sniffing around.

First, ask your attorney how many other judgments this person has against them. In North Carolina, debt is ranked in order of when the judgment was entered. So, if the debtor has five other judgments, and they all came before yours, you’ll be 6th in line to be paid if anyone can find money and if the law lets you have it (I’ll get to that issue in another blog). Example: you have a judgment for $5,000 and you’re 6th in line. The total of the other judgments is $10,000. You, from 6th place, execute and hit paydirt: you find $10,000 in a bank account and snatch it. Guess what? You just paid an attorney to get the 5 people in front of you their money and you bet bupkis.

If you’re way back in line, consider sitting on your judgment for awhile. Maybe this person will inherit enough to pay all the debts. Maybe the judgments in front of you won’t be re-filed at the end of their 10 years and they’ll vanish, moving you ahead in line. Maybe this person will want to buy a house, or a car, and will need to pay everyone off first. Who knows?

Second, ask your attorney to do a basic asset search. An asset search tells you whether this person owns a house and in whose name, how much it’s worth, whether it’s mortgaged and if it’s under water, whether they own rental property or vacation homes, the value of their car(s), etc. These are decent barometers for gaging the debtor’s economic climate. If the house is owned by husband and wife, for example, you can’t touch it unless you have judgments against both. If it’s underwater, the person is probably broke. If the cars are all junkers, the person is probably broke.

You might pay your attorney a couple hundred dollars to check these things out for you, but it’s an investment in your education about the debtor. More importantly, it’s an investment in not tossing thousands of good dollars after bad ones.

The Second Boat: If you’re in the second boat, it means you still need to file suit and get a judge to agree that someone owes you money before you have any chance short of a baseball bat to the knees (illegal – don’t do it) of getting paid. Asking your attorney for judgment and asset searches on the front end is equally, if not more important, because you’re really about to spend some money chasing the debtor. You need to file a complaint ($150-200, depending on the court), and serve it ($15-30), and pay an attorney to litigate it (still cheaper than taking your family to the movies these days, but expensive nonetheless).

At this point, you’re thinking CONTINGENCY FEE! Right? Because the risk is all on the attorney. Think again. Contingency in this situation is great if you don’t think you’ll collect. You spend no money. You get no money. No one goes to the movies that night. The end. But if you think there’s money to be had, contingency can cost you much, much more than it should.

Consider this: you’re a North Carolina corporation doing business with another North Carolina corporation on an open account. That company runs up a huge debt, you call the account due, and they ignore you. Contingency? Maybe not. Chances are, if the company is solvent, it will pay you, but it will procrastinate about it as long as possible while singing a sad song about the economy. Chances also are that a well-written, detailed letter from an attorney who takes the time to write more than a not-scary form letter will jar the money loose. Do you want to pay your attorney 33% of your total recovery when he or she only did about a thousand dollars worth of work? Probably not. That said, hourly is a gamble, too.

The other side might think it has a valid defense and put up a huge fight. And huge fights are expensive. That’s why you and your lawyer need to assess the financial situation of the debtor as best as possible, assess the validity of any counterclaims, and create an honest cost/benefit analysis before you begin. If nothing else, making these assessments on the front end will enable you to make an informed decision about whether, how, and how aggressively to pursue the debt going forward. More likely than not, these assessments will prevent you spending a lot of money to achieve nothing in the end.

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