A Step-by-step Approach to Preventing, Obtaining a Judgment on, and Collecting on Business Debt

In my previous article on obtaining a judgment on money owed to a business, I address how Massachusetts business managers and owners can pursue a breach of contract or similar issue which, in effect, creates a debt that is owed to that business. In this article, I review the means by which attorneys enforce and collect on debts for businesses.

Let us first dispense with some commonly asked client questions to shed some light on the subject of debt collection generally.

“Can’t My Attorney Collect the Debt for Me?”

Yes and No. Yes, an attorney can draft and send a letter to a Massachusetts business for the purpose of attempting to collect on a debt. In some instances, such a letter may be a useful tool which demonstrates to the other party that you and your business are serious, and willing and able to proceed to take additional steps, if need be, to collect on the debt. At other times, the other party will ignore the letter or even double down on their intent not to pay what is owed to your business.

When a debtor, or a business with which you are working that owed you money, refuses to cooperate and pay money that is owed to your Massachusetts business, the next step may be to bring that business to court to obtain a judgment (if this has not already been accomplished). Once a judgment in obtained, the next issue will be to collect on that debt if the party refuses to pay.

“Doesn’t the Massachusetts Court System Help Me Collect a Debt Owed My Business?”

Not directly. Courts in Massachusetts can be instrumental in obtaining a judgment in your favor, and in enforcing a solution so that you can actually collect, but, the fact that your business has obtained a favorable judgment does not mean that the debtor will pay what it owes.

Debt Collection Solutions in Massachusetts

Reach and Apply

Massachusetts law allows for creditors to “reach and apply” money that a debtor is about to receive if the creditor already has a judgment for that debt in its favor. For example, if a debtor is about to receive a sum of money from a loan by a third party, an investment, or other sum of money coming in, it is possible that a successful reach and apply action will allow the creditor to intercede.

Ex-Parte Attachments

Attachments may be sought for creditors in Massachusetts courts either with or without notice. There is a strategic advantage to obtaining a without notice attachment because doing so may prevent the debtor from concealing, assigning or transferring those assets due to being forewarned. In order for a Massachusetts court to approve a without notice attachment, the creditor must be able to demonstrate that the debtor will conceal, assign, or otherwise transfer his or her assets. If it is impossible for the creditor to provide this proof, the next available option is to seek an attachment of assets with notice.

Attachments apply to both real estate and to bank accounts primarily, but can also apply to other assets like vehicles.

Receivership

Corporations can be subject to receivership. M.G.L. chapter 214, section 1 outlines the process of receivership. Once a judgment has been granted the creditor, and a demonstrable effort to collect the debt on the part of the creditor can be shown to the court, and facts exist which clearly indicate activity by the debtor that is extremely troubling, essentially a Massachusetts court will appoint an attorney to take over management of the financial decisions of the debtor corporation.

Since the receiver controls the assets of the debtor corporation, decisions may be made to settle a debt owed to the creditor. Since the option of receivership is only available after a judgment is granted to the creditor, this option would likely be a last ditch effort on the creditor’s part.

Rule 69 Depositions

Again, once a judgment has been issued by a Massachusetts court, a judgment creditor can hire an attorney to depose the debtor. The deposition requires the debtor to sit under oath and answer questions from your attorney relative to the debtor’s income, tax returns, bank and investment accounts, inventory, equipment, machinery, and any other relevant asset. The Rule 69 Deposition is a very useful tool in attempting to collect on a debt.

The Supplementary Process Solution

An infrequently used, last ditch effort to collect on a debt is available to force the judgment debtor into court to answer to why they are unable to make payment on the debt which they owe. In a Massachusetts Court, the debtor is then subjected to examination by the Court and the Court will issue a payment order, spread out over a single or several payments.

The Supplementary Process is infrequently used, because one can argue (often successfully) that a debtor who refuses to settle a debt where a judgment has already been granted the creditor is unlikely to settle a debt where a second judgment has been issued. Although, sometimes this procedure can break down a debtor, it is infrequently used.

Collecting Interest on Judgment

Massachusetts law allows, in the absence of a contract, the creditor to collect interest on a judgment at 12% annually. Before the judgment is achieved, it is possible to request a higher percentage rate up to the usury rate in Massachusetts which is 20%. The interest rate this is either requested in the pleadings or that has been applied by the court will usually be assessed from the date of demand or the date of the filing of the complaint until the date of judgment awarded by the court and then continue to accrue postjudgment.

Can a Debtor Escape by Filing for Bankruptcy?

A great question. Yes and No is the answer, and timing is critical to the result. Basically, if a creditor is attempting to recover delivered goods, is able to identify those, has made a demand for those goods is immediately, and the goods in question were delivered within a 10-day period preceding a bankruptcy filing, it may be possible to recover those goods. Also, depending upon the specific bankruptcy chapter filed, it may be possible to attend a Section 341 meeting of the creditors to at least weigh in on the fact that you are owed a debt and are present to reclaim it.

At the very least, where a creditors meeting is involved, by having your attorney attend such a meeting you may be able to realize whether the creditor has sufficient assets to cover your debt or whether the cause is lost.

DISCLAIMER: The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.