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Anatomy Of The Collections Process:  An Overview With Efficiency Tips From A Seasoned Collections Lawyer

B.Parties to a contract can agree to charge and pay interest up to 10% per annum, even orally (not a good idea!);


If agreed in writing, signed by the customer, interest can be charged at 1 ½% per month or 18% per annum.

See Finance Code Sec. 301.001, et.seq. for provisions on interest, usury penalties and curing usury.

Examine the client’s file to avoid the usury trap.  Is the debtor’s signature on a credit application or other contract that contains a provision for charging interest?  Relying on an interest provision in the delivery invoices only is not advisable, because the signature of an authorized party on each and every invoice would be required.  If the client has committed usury, the Finance Code has provisions for cure, which should be done in the initial demand.  See language in Attachment 4 for Notice.  Additionally, the client is required to cease any usury violations as to all of its accounts since notice of a violation on one account may put the creditor on notice of violations of a similar nature in its other accounts.  See Finance Code Sec. 305.103.

VIII. Demand Letters.  

Tip:Avoid the urge, or the urging of your client, to be overly aggressive with the language of your demand.  After all, you want a positive response to the demand letter.

Short and to the point is best.  Identify the creditor and balance due.  Account numbers and/or invoice numbers may be advisable, although these are usually for the benefit of the client.  Demands on consumer debt necessarily include notice language pursuant to the Federal Act. See IV., supra.  (A discussion of demands relating to foreclosure of liens on homesteads is beyond the scope of this paper).  Attachment 3 are 4 are form demand letters for consumer and commercial debt, respectively.  By keeping them simple, you reduce the risk of giving legal advice or running afoul of the consumer debt collection statutes.  There is no need to tell the debtor all the nasty things you may do in the event of non-payment.  

Send all demand letters by regular mail, address service requested.  See page 3 for discussion of address service requests as a means to locate the debtor.  If required by contract or statute, also send by certified mail, return receipt requested.  If no such requirement, save your client the cost of certified mail and send by regular mail only.  Any follow-up

correspondence or pleadings to pro se debtors that is required to be sent by certified mail, return receipt requested, should always also be sent by regular mail, address service requested.  Pro se debtors are often allergic to green cards!

I don’t sue immediately after the expiration of my 10-day demand or 30-day demand.  I actually make one to three follow-up calls.  I always prefer making phone contact before I sue to discover whether the debtor got my demand, whether there are any defenses and whether a settlement or payment agreement is possible.

IX. Payment Agreements.

Tip:Though not as “sexy” as garnishments, executions and turnover proceedings, payment arrangements with the agreement to hold off further legal action often result in the most cost effective means of collecting debt, especially when you are dealing with debtors with few unencumbered non-exempt assets.

A. Pre-suit.  

Ninety-five percent of all debtors would write a check for the debt owed-but they can’t.  The other five percent are stubborn or have a bone to pick.  After receiving demand, some debtors will make an offer of payment.  You will likely have to make follow-up calls to solicit an offer of settlement or a payout.  

The pre-suit payment agreement should clearly reflect (1) the liable party; (2) the balance due; (3) the payment terms; (4) the grace period; and, (5) a release of all claims.  Item number five is most important in the event suit becomes necessary.  See Attachment 6 for a sample pre-suit payment agreement letter.  If an extended payout is required, the parties may agree to an interest charge on the balance due.  See Attachment 7 for a sample pre-suit payment agreement letter forwarding a promissory note, as well as the promissory note with release language contained therein.

Sometimes it is good to “incentivize” the debtor to accelerate the payment agreement by providing for a discount of the balance due for early payment, abatement of interest for timely payments, or reduction or elimination of collection costs.

B. Secured by Agreed Judgment.  

Some debtors won’t ‘get real’ until sued.  If the creditor goes to the trouble of filing suit, an Agreed Judgment to secure payment is reasonable.  Attachment 8 is a letter forwarding an Agreed Judgment for signature, along with an agreement to


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