Case Investigation: Maximizing Commercial Collection
Commercial collection may be straightforward when a defaulting debtor owns significant real property, has lucrative relationships with identified third parties, or maintains significant money in readily identifiable bank accounts. Commercial collection may be more challenging if a debtor’s assets aren’t as obvious, either because the defaulting debtor has few or no assets, or its assets aren’t as readily apparent.
California has a statutory scheme that provides mechanisms for judgment creditors to recover money involuntarily from judgment debtors. However, a creditor cannot collect if the judgment debtor’s assets cannot be located.
Identifying a defaulting debtor’s assets can be helpful even if a creditor does not have a judgment. Almost all defaulting debtors claim financial distress. A creditor with good information about a debtor’s assets and financial condition will have a better idea of how hard a debtor can be pushed for payment before the debtor is forced into bankruptcy.
Locating debtors and assets is referred to in the collection industry as “skiptracing.” Skiptracing is particularly important in commercial landlord/tenant debt collection because, after an eviction, the tenant has relocated and must be found. One must have the necessary tools to locate a debtor and its assets. Effective skiptracing requires technology, creativity, and persistence.
Public records can be used to locate debtors and their assets. Property ownership records, bankruptcy records, fictitious business names, and business licensing records can be valuable resources.
Most successful collection firms have business relationships with companies who compile and sell information such as employment, location, credit and other information helpful in locating debtors and assets.
Some collection firms specializing in debt collection have invested in software to help with collection. Software may track information about the debt, the debtor, and past collection activity and schedule reminders for future action. Custom software may interface with sources of public record and business credit information to compile potential leads on debtors and their assets. Specialized software may even “scrub” data and prioritize telephone numbers, addresses, and bank information based upon the veracity of the data. While custom software packages can cost hundreds of thousands of dollars, collection firms who make the investment offer their clients a higher rate of return.
While technology is a key component of effective skiptracing, the ability to locate debtors and assets also requires a collector’s personal attention and good judgment.
Law firms that specialize in collection have additional tools available to locate debtors and assets. Additional investigational tools available to collection lawyers include subpoenas, judgment debtor examinations, and interrogatories to judgment debtors. These tools are available only to law firms; they are not available to other third-party debt collection companies.
Commercial collection success requires good tools, accurate determination of which leads to follow and the best method of pursuit, and effective implementation of the chosen course of action.
Our Creditors’ Rights Practice Group effectively utilizes all available collection tools to ensure our clients the best opportunity to collect all amounts due. For more information about collections, please contact us at 800-575-1770.
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