This content was published prior to the combination of Dentons Sirote. Learn more about Dentons Sirote. 

What happens when a customer doesn’t pay? Well, creditors generally have a process that they commence to try to get payment. And, as Coach Saban teaches us, those creditors that create a sound process often achieve the best results.*

Step one in the collection process involves contacting the debtor with a series of reminders concerning delinquency. These contacts may be verbal or written. Verbal contacts are generally conducted by telephone or in-person field calling. Written contacts are by US mail, overnight courier, email or SMS messaging. Please see my many past blogs addressing issues relating to these collection methods, including:

• The Telephone Consumer Protection Act’s $500 per Call Penalty X 3 = Big Time Damages;
• Collections, Again;
• Collection Communications;
• Email, Phone and Text Communication with Consumers;
• Debt Collection.

Such contacts often get progressively more demanding.

If the contacts step does not result in payment or a payment arrangement, a creditor intending to pursue the collection of the debt may result to its self-help remedies if available, or to judicial remedies.

Self-help is the term associated with exercising rights under Article 9 of the Uniform Commercial Code, when a creditor has taken an Article 9 Security Interest in property of the debtor to secure repayment of the debt. Such security interest may be “purchase money” or “non-purchase money” in nature. (I will address this distinction in a future blog.) If recovery is not accomplished by this remedy, which requires a peaceful repossession, then the creditor is left to its judicial collection remedies.

Judicial collection remedies may take several forms. But, first, the creditor must obtain a judgment against the debtor in order to pursue a judicial collection remedy. Once a judgment is secured, then a judgment creditor has several remedy options in most jurisdictions:

1. The remedy of garnishment allows a judgment creditor to levy on monies owed to the judgment debtor by third parties. Usually, such monies take the form of wages or salaries owed to the debtor. This remedy is initiated by a writ of garnishment that must be approved and awarded by a court. This is the most common remedy used in the judicial collection of consumer debt. Note, however, in Alabama and other states, there are exemptions that may severely restrict this remedy.
2. If the judgment creditor has an Article 9 security interest in property retained by the debtor and was not successful in obtaining possession via self-help repossession, the judgment creditor may pursue a detinue action to recover the property. A detinue is an action to reclaim goods wrongfully detained. Once a detinue judgment is awarded by a court, then the creditor must seek a writ of execution from the court instructing the sheriff to levy on such detained property.
3. If the judgment creditor does not have an Article 9 security interest in property of the judgment debtor or other rights in the debtor’s property, then if the judgment creditor can identify property owned by the debtor, the judgment creditor may petition the court for a writ of execution on such identified property of the debtor and seek to have the sheriff levy on such identified property.

The latter two remedies particularly are time consuming and costly, but are generally available. The last method requiring the identification of debtor’s property that is unencumbered and has value, is particularly problematic.

Once a creditor is forced to seek its collection remedies through the courts, the cost of doing business with the consumer may well have reached the point where the transaction has resulted in loss rather than profit.

*I apologize to fans of other colleges and universities, but I cannot get through a college football season without a nod to Nick Saban!

Please note: This is the one hundred thirty-eighth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.