Creditors’ Rights and Collections – FAQs
1. WHAT ARE THE ATTORNEY’S FEES AND COSTS INVOLVED WITH BRINGING A COLLECTION ACTION?
Fees and costs will vary with the nature and complexity of the collection action itself. If a collection action is brought by an individual creditor rather than a corporation and the amount sought is under $5,000.00, a creditor can utilize the Small Claims Court. In Small Claims Court, court costs rarely exceed $50.00 and an individual creditor may represent him or herself, thereby avoiding attorney’s fees altogether.
If a case is brought in Superior Court, court costs can range from $225.00 to $500.00. Most attorneys charge on an hourly basis; the hourly fee ranging from $150.00 to $350.00 an hour. Some attorneys will take a collection case on a contingency basis.
2. CAN A DEBTOR BE FORCED TO PAY A CREDITOR’S COSTS AND ATTORNEY’S FEES INCURRED IN LITIGATION TO COLLECT A DEBT?
Under Connecticut law, a creditor is generally not entitled to reimbursement of attorney’s fees incurred in the collection of a debt unless the debtor has previously agreed in writing to pay these costs.
3. WHAT MEASURES CAN A POTENTIAL CREDITOR TAKE TO REDUCE THE POSSIBILITY OF DELINQUENT ACCOUNTS?
Credit policies need to be closely and constantly examined in light of today’s economic realities. Know your customers and clients. Every business involved in extending credit should have written credit applications for its customers to complete prior to the actual extension of credit. At the very least, these applications should request information to allow the potential creditor to adequately assess the credit-worthiness of the individual or corporation applying. Such information should include a listing of all principal individuals or corporate officers, if applicable, and their addresses, credit references—banks and other trade references—real property and other assets owned, and outstanding liabilities. The credit application should also state, in clear and concise language, the credit terms. Provide a space for the customer or client to sign, reflecting understanding and agreement to the terms. Once the credit application is completed and references are checked, the potential creditor can intelligently assess how much credit should be extended, if any.
Credit applications should be periodically updated. Even long-term clients and customers should be asked to complete these forms. A carefully drafted credit application is an invaluable tool in the actual collection process if a debt does become seriously delinquent. For example, a credit application can be used to secure an unconditional guarantee by the officers, shareholders, or principals of a corporation for the payment of all debts owed to the creditor by the corporation. Often a corporation is undercapitalized and unable to pay a judgment if one is secured. Officers, principals, and shareholders will always be more accountable if they are individually liable.
Additionally, a credit application can contain an agreement between the parties that stipulates that the customer or client be responsible for collection costs, including a reasonable attorney’s fee, in the event an account is handed over for collection. This is an important contract right since, under Connecticut law, a creditor is generally not entitled to reimbursement of attorney’s fees incurred in the collection of a debt unless the debtor has previously agreed in writing to pay these costs. There are other important rights that can be secured by a creditor in a properly-crafted credit application. An attorney experienced in creditors’ rights can be of great assistance in devising, reviewing, and updating credit applications.
4. CAN A CREDITOR REPRESENT ITSELF IN A LAWSUIT TO COLLECT A DEBT?
The procedures of Small Claims Court are designed so that individuals can represent themselves without the assistance of an attorney. However, the jurisdictional limit in Small Claims Court is $5,000.00. Corporations and limited liability corporations may also bring suit in Small Claims Court without hiring an attorney.
If an individual creditor can wade through the procedural thicket of a Superior Court action, there is no bar to representing oneself. However, under Connecticut law, a corporation may not represent itself in Superior Court.
5. HOW LONG DOES IT TAKE TO GET A COURT-ORDERED JUDGMENT AGAINST A CREDITOR?
If a case is contested and a trial is necessary, it takes about a year to a year and a half to get your day in court under the current judicial administration. There are some alternative dispute resolution procedures available to litigants to shorten this process. If a case is not contested by a debtor, a judgment can generally be obtained within three to six months after the filing of a complaint.
6. ARE THERE ANY PROCEDURES AVAILABLE TO SECURE ASSETS OF A DEBTOR BEFORE OBTAINING A JUDGMENT AGAINST THE DEBTOR?
Yes. Prejudgment remedy attachments are available under Connecticut law if the proper procedures are followed. This can be an invaluable tool to a debtor when there is a possibility that a debtor will transfer assets to friends or relatives, further encumber real estate, or otherwise dissipate assets that can be used to secure a debt.
7. ONCE A CREDITOR OBTAINS A JUDGMENT AGAINST A DEBTOR, WILL THE DEBTOR PAY?
In many cases, a debtor will simply pay the creditor once a judgment is obtained. However, simply obtaining a judgment does not guarantee that the debtor will pay. In many cases, the creditor’s attorney must take further steps to obtain actual payment.
8. ONCE A JUDGMENT IS SECURED BY THE CREDITOR AGAINST THE DEBTOR IN COURT, WHAT STEPS CAN THE CREDITOR TAKE TO SECURE PAYMENT OF THE JUDGMENT?
After judgment, the creditor’s attorney has a number of legal tools at his or her disposal to help find and attach assets to satisfy a judgment. For example, the creditor can question a judgment debtor under oath about available assets.
Liens can be placed on any real property owned by the debtor. The creditor can request the court to order the debtor to make installment payments to satisfy the judgment. If payments are not made in accordance with the court order, an execution can be issued against the debtor’s wages, personal property, or bank accounts so that the creditor can satisfy the debt out of the debtor’s wages, bank accounts, or non-exempt personal property. Under Connecticut law, some property is exempted from execution by statute.
9. WHAT HAPPENS TO A CREDITOR’S LAWSUIT ONCE A DEBTOR FILES FOR PROTECTION UNDER THE BANKRUPTCY CODE?
The immediate effect of a bankruptcy filing on a lawsuit is an automatic stay on the action. The automatic stay is embodied in §362(a) of the Bankruptcy Code. This stay stops all collection efforts. In some circumstances, a creditor can file a motion in the Bankruptcy Court to lift the stay as to that creditor.
10. WHAT ASSETS OF A DEBTOR ARE EXEMPT FROM EXECUTION UNDER CONNECTICUT LAW?
The single most significant exemption is the homestead exemption, which allows an individual debtor to keep up to $75,000.00 of equity in his or her primary residence. Other exemptions include necessary personal property and household furniture and appliances, tools, public assistance payments, child support, payments under a qualified deferred compensation plan, and wedding and engagement rings.