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FAQ: Creditor rights for small businesses

Answers to common questions about collecting on a debt. 

If a client, consumer or debtor has failed to pay the amount owed, it can have a drastic impact on your bottom line.

But what are the legal options available to you? This article will answer common legal questions small business owners often have regarding collections matters.

Do I have to go to court?

A small business’ first attempts at collection will not involve the courts. Sometimes, a strongly worded letter from your attorney indicating your willingness to engage and see through all possible legal collection efforts is enough to show a debtor you are serious and not going away.

But while out-of-court remedies are ideal, it is wise to leave yourself open to initiating legal action in court. It will improve your chances of obtaining payment before the court case is resolved, and if other attempts fail, you will be able to force the issue.

I need the money or goods now. Can I seize assets if the debt is not repaid immediately?

In some cases, it is possible for a creditor to seize assets before the completion of court action. In Indiana, for example, it is possible to initiate an action for replevin, which is designed to recover assets from another party that has wrongfully taken or detained assets.

However, this is an extraordinary legal remedy, and is only available in certain cases, such as if you have secured collateral on perishable goods, or if the value of the goods in question with depreciate rapidly. In addition, under Indiana law you may obtain money damages for the loss of use of the property in question or for depreciation of property.

You may also seek attachment, which is a court order granting you title to property. Like replevin, this is only available in certain circumstances in which the property at issue is likely to depreciate or the current possessor is likely to dispose of the property soon.

What can I do to prevent future non-payment?

The good news is that in many instances, you can help lower your risk of non-payment through liens and secured collateral. These legal tools in a contract allow you to seize property or title if the payment terms are not met.

What happens if I win the case? How do I collect?

A court judgment carries a lot of weight. If the debtor has other obligations and cannot repay them all, creditors with a court judgment will have priority over some other types of debts in bankruptcy proceedings.

In addition, court judgments can be enforced through property seizures carried out by a sheriff. Other enforcement mechanisms available include wage garnishment and contempt of court orders, if the debtor continues to ignore payment obligations.

A court order in Indiana awarding you damages for breach of contract or failure to pay can also be enforced out-of-state, although there are certain other legal actions you must take to do so.

I have more questions. What should I do?

Collection matters can be complex. You need to get the most money possible while limiting your legal expenses. But the appropriate action depends largely on the type of debt, any collateral, and other individual circumstances.

For help with your collection matter, contact Carson, LLC, to discuss your legal options and next steps.