I have attended a lot of seminars on "how to get paid." It's always important to figure out the mindset and methodologies of collectors and attorneys and to keep up with developments.
It's a mantra with attorneys at these events that, before they file suit in a debt action, they always do their "due diligence". Most of them will say this up front. By this, they mean that they find out beforehand if it is going to be worth their client's money to go after the defendant firm. After all, if the assets are all tied up and the defendant company is on its last legs, there's not much point in filing suit.
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Collection attorneys have a different take on this than other legal professionals. Some of them run high volume operations and can live on the income from doing so, but the real money is in the percentage of the cash collected. They deserve this, because they absorb some of the risk of collection, unlike your general legal practitioner, who gets paid on an hourly basis no matter what, and may be satisfied with a judgment. I know this because I've frequently taken on clients with exposed, collectible assets, but where uncollected judgments are shown on their D&B credit file. Collecting money - post-judgment - can be challenging and general legal counsel are not always very effective in this endeavor.
In their drive to collect a commission, collection attorneys can sometimes overlook the fact that a judgment will push the firm into bankruptcy. I question the fact that they always do the "due diligence" that they claim they do. As a recent example of this, a business owner called us in for emergency help. The firm was at the end of its tether and owed a substantial sum to a supplier, which had resulted in a lawsuit. The plaintiff and its attorney were unwilling to accept anything other than the full balance claimed. No cents-on-the-dollar deal and no payment schedule, despite a full account of the debtor firm's true situation.
The defendant firm was heavily indebted and on a knife edge with its bank loans. We informed the supplier's attorney that a judgment would put it over the edge. But our settlement proposal was turned down. The disheartened business owner did not want to prolong the agony by retaining counsel to delay the inevitable. A judgment was sustained and, as sadly predicted, the big SBA loan was called. The firm was forced out of business and the bank claimed all the assets, leaving the plaintiff with zero.
The supplier cried loudly that his attorney should have advised him to accept our deal, the inference being that he had not adequately done his "due diligence".
The key to resolving disputes, especially in crucial game-over situations like this, is to communicate with the plaintiff's counsel the true facts of the case. He or she has to know - if they have not done their much ballyhooed due diligence - why your firm does not have the ability to pay the sum claimed in full.
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