Q: I work in the accounts receivable department of a company which ships
products out nationwide (and internationally, too). When customers don't
pay, can we sue them in our state, or do we have to hire an attorney
located where the customer is?
A: There is no simple answer to this question; it depends on the
situation. First, if you are selling to "consumers" for their household
needs (as opposed to businesses), the Fair Debt Collection Practices Act
would require you to bring the suit in the county where the customer is
located, or where the customer signed the contract. Failure to do so would be risking a counterclaim against you for
"forum abuse," which is defined as forcing someone to defend a claim in a
jurisdiction where they have no or minimal contact.
As a practical matter, it is often advisable to bring an action where a
business is located, also. This is because their assets are usually
located where they are, and not where you are. The advice may change if
your non-paying customer is a business with assets located nationwide. You
could also try to bring the case locally and see if the customer does not
object to your state having jurisdiction. Then, if you obtained a judgment
in your state, you could transfer it to the state where the customer does
have assets. Although this becomes a two-step process (and, often, a
two-attorney process as well), the advantage is that if it works, you would
not have to send a witness to appear in the court where the customer is
located.
Q: Isn't hiring a lawyer expensive? Shouldn't I just write off my bad debts?
A: Speaking for my law firm, I don't perceive the costs of hiring a lawyer
to be unduly expensive. The vast majority of cases can be handled on a
contingent fee (percentage) basis. You would additionally be responsible
for payment of court filing fees, fees for service of papers and other out
of pocket fees. These out of pocket fees rarely exceed $100 is most cases
involving under $8000 which my firm handles.
As far as "writing off" the bad debt, I advise against giving up so easily
for several different reasons. One of which, as I elaborate elsewhere on
my home page, is that failure to pursue your delinquent accounts receivable
is not only costly to you, it may make you an "easy mark" for unscrupulous
customers who look for easy credit terms and lax enforcement of payment
terms. Another is simply that the IRS is purposefully unclear on
eligibility for writing off bad debts. Their operative test is "no
reasonable prospect for recovery." In some instances, this standard can
and has been interpreted to mean that a lawsuit must be brought if the
prospect of recovering even part of the bad debt is "reasonable." The
biggest problem is that if a deduction for bad debt is diasallowed by the
IRS, it is often done several years after the fact, at a point in time
where a lawsuit is likely outside the statute of limitations. If this
happens, you lose the deduction, and you can lose the opportunity to
recover from the customer because too much time has elapsed.
Q: What can we do if our customer goes bankrupt?
A: First, let me explain what you can't do. You can't pursue collection
from them (and you can't hire anyone to pursue collection from them) except
through the bankruptcy court. You can't bring a lawsuit against them
(except through the bankruptcy court) and all pending actions against them
(except in bankruptcy court) are "stayed," that is, postponed indefinitely
until the discharge is granted or the case is dismissed. This relief to
the party filing for bankruptcy protection is known as the "automatic
stay."
What you can do is assert your claim through the bankruptcy court. You
should not automatically assume that bankruptcy means no chance at
collection, although, as a practical matter, for many, if not most
unsecured creditors, bankruptcy will likely cause one or more of the
following: 1) a delay in collecting funds; 2) a reduction in the amount of
funds that can legally be collected, and 3) in some cases, an elimination,
by court order, of the debt in its entirety ("Discharge").
What my firm can do for creditors in this situation is to review your file,
at no initial cost, to determine whether our intervention is warranted. If
you choose to use our services, we will propose a specific plan of action
and a fee schedule. You may then decide how you wish to proceed.
Disclaimer: This page is a service of Ron Z. Opher, Esquire, Your
Collection Attorney. The service is intended as a forum for presentation
and discussion of issues of concern to creditors and others viewing the
home page. Nothing included in this section, or in the accompanying
literature presented herein shall create, in and of itself, an
attorney-client relationship between Ron Z. Opher, Esquire and the
viewer/participant. Similarly, nothing presented by participants shall be
deemed to constitute privileged information, nor shall any material posted
by viewer/participants be deemed to constitute intellectual property.
Information contained in these pages, while it may be helpful in a general
nature to viewer/participants, is not a substitute for presentation of the
specific facts of a situation to an attorney, under the express terms of an
attorney-client relationship, for specific legal advice. Ron Z. Opher,
Your Collection Attorney, is not responsible for viewer/participant
reliance on the information contained herein.
In order to establish an attorney-client relationship with Ron Z. Opher,
Your Collection Attorney, you must make telephonic, written or electronic
mail contact directly with the office of Ron Z. Opher, Your Collection
Attorney and enter into a written fee agreement.
P.O. Box 2245
Southeastern, PA 19399
610-902-0530
1-800-RON-4-LAW
One Greentree Centre,Suite 201
Marlton, NJ 08053.
856-988-1200
