Collections: Debt Collections: You Need a Plan, From the Beginning

Any business or lending institution that extends credit to its customers or members will inevitably be faced with bad debts.  To insure maximum collection results, creditors should establish credit and collection policies before a problem occurs.

Before you extend credit, there are several things that you can do to reduce your risk. 

1. Obtain full names, addresses, telephone numbers, places of work, social security numbers and dates of birth.
2. Obtain the name of the customer's bank, branch, and account number.
3. Review a credit report.
4. Ensure that all credit terms are clear.
5. Have personal guarantees for small businesses.
6. Perfect security interest in events of large credit.

 When accepting personal checks, take the following precautions:

1. Insist on two pieces of identification, at least one of which has the customer's photo.  A driver's license and a credit card are ideal.
2. Require checks to be made out in your presence.
3. Compare the signature on the check with that on the ID.
4. Limit checks to the exact amount of the sale.
5. Accept only checks drawn on local banks.
6. Verify the customer's address and phone number on the check.  Also note the customer's social security number and/or driver's license number.
7. Be cautious when accepting checks with low numbers (indicating that the account was recently opened).
8. Consider subscribing to a check verifying service.  For a modest fee, such a service allows you to call a toll-free number and learn immediately if you can safely accept the check.  If a check bounces after being verified using this procedure, the service will cover your loss.

When the debt is in default, act promptly!  The longer you wait, the harder collection will probably be.  We usually recommend immediate telephone calls, followed by a series of two or three letters.  In the final letter, give a definite and short deadline with the promise of attorney action.

The decision as to when a creditor should deliver its accounts to counsel for collection is not always an easy one.  Some creditors deliver collections accounts to counsel after the initial demand has failed to produce results.  Some creditors desire to have their credit/collection manager take their judgment and attempt collection by payment plan, garnishment, or even sometimes, sheriff's levy.

The problem frequently encountered by creditors who pursue their own judgments, however, is that in most cases the ability to collect without the assistance of counsel ends prior to the receipt of payment in full.  When this occurs, counsel must normally assume collection activities after the trail is cold.  Further, since the creditor was not represented by counsel at the time of judgment, the judgment order does not include attorney's fees; nevertheless, attorney fees will now be charged to the creditor.  In addition, if the creditor's credit/collection manager failed to properly docket the judgment, collection could be forever impaired.

The firm recommends that creditors immediately deliver accounts to counsel upon the failure of the demand for payment.  Creditors should ensure that provisions for attorney fees and interest are included in all loan, contract and/or account documents so that counsel can assess these costs upon delivery.  The firm further recommends that all accounts be delivered while the "trail" is still warm--no more then sixty days from default.

The firm has aggressive collection counsel and staff who represent numerous Credit Unions, Homeowner Associations, property management companies, loan companies, businesses, doctor's offices, and private citizens.  The firm is willing to pursue accounts from start to finish, or even finish accounts already in progress.

Foreclosure: Deposits

Virginia Code §55.1-324 permits the trustee to require of any bidder at any sale a deposit of as much as ten percent of the sales price, unless the deed of trust specifies a higher or lower amount. However, because the statute is not mandatory, the trustee is given the right to waive the deposit if he deems it appropriate, unless the deed of trust requires a specific deposit. The trustee should also consider using a fixed amount as the deposit rather than a percentage of the sales price. Using a percentage of the sales price as the method of determining the required deposit often results in confusion, and the successful bidder has either too much or too little money to deposit. A fixed deposit avoids the confusion and allows all potential buyers to know exactly how much money to bring to the sale to deposit. The fixed deposit should not be excessive but should be of a sufficient amount to ensure that the successful bidder completes the closing of the sale.

Real Estate: Common Area Parking Spaces Must be Assigned Equally

The Court of Appeals of Virginia recently issued an opinion affirming a Circuit Court decision holding that common area parking spaces must be assigned equally. The case involved a suit by a homeowner, Patrick Batt, against Manchester Oaks subdivision in Fairfax County. The subdivision contained 57 townhouses, 30 of which were constructed with a garage and driveway (garaged lots) and 27 of which were constructed with an additional bedroom and bathroom in lieu of a garage (ungaraged lots). The subdivision included a common area with 72 parking spaces.

The subdivision was subject to a declaration, administered by the homeowners association that gave the association the right to designate a maximum of two parking spaces for the exclusive use of each lot owner. However, the association was not required to ensure that parking spaces were available to any particular owner or to oversee use of the parking spaces. Batt had purchased a garaged lot in 1990, before the subdivision was complete. At that time, residents parked wherever they chose. In 1993 or 1994, the developer began assigning two parking spaces to each ungaraged lot. The remaining 18 parking spaces were designated as “visitor” parking, available to all lot owners on a first-come, first-served basis.

In 2009, the association issued one visitor parking permit to each lot owner and posted a parking policy on its website. Any vehicle not displaying a permit while parked in the visitor parking spaces would be towed. In December 2009, the association amended the declaration to provide that the association had the right to designate two parking spaces exclusively to each of the ungaraged lot owners on a non-uniform and preferential basis. In June 2010, Batt sued the association, claiming that the unequal treatment of owners over parking space assignments violated the declaration. The association argued that Batt’s suit was barred by the December 2009 amendment to the declaration.

The circuit court ruled in Batt’s favor, finding that the amendment was invalid for six reasons. The association appealed. The Court of Appeals ruled, in summary, that equality is inherent in the definition of “common area.” A “common area” is defined as, “[a]n area owned and used in common by residents of a condominium, subdivision, or planned-unit development.” Black’s Law Dictionary defines “in common” to mean “[s]hared equally with others, undivided into separately owned parts.” Accordingly, the court held that the association must assign common area parking spaces to all lot owners equally, if at all, unless the declaration expressly provided otherwise. In this case, the court did not find that unequal assignment was authorized.

Bankruptcy: Retirement Plan Exemptions - IRA - SEP- Pension Plan in Chapter 7

The United States Bankruptcy Court, in Alexandria, in the case of In re: Bissell, ruled that where a debtor has an IRA, an SEP and an ERISA-qualified pension plan, his exemption under Virginia Code §34-34 is computed without regard to the pension plans. The Bankruptcy Court rejected the creditor’s attempt to apply the value of the ERISA-qualified plan to the amount exempt under Virginia law, so as to wipe out the exemption for the IRA or the SEP and obtain an additional $71,538 for the bankruptcy estate.

The debtor asserted that the maximum exemption allowable under Virginia Code §34-34 for his individual retirement account and his simplified employer plan was computed without regard to his ERISA-qualified pension plan. He aggregated the value of the IRA and the SEP and applied the maximum allowable under exemption, $52,955, against this amount. He acknowledged that since the IRA and SEP have a total value of $71,538.52, the excess over the maximum allowable exemption of the IRA and SEP, $18,583.52, was not exempt under Virginia Code §34-34. The ERISA-qualified pension plan does not form a part of the computation because it, unlike the IRA and SEP, is not property of the estate.

The creditor asserted that the value of the ERISA-qualified pension plan must first be applied to the $52,955 amount exempt under Virginia Code §34-34. Since the pension plan had a value of $363,915.13, this method of computing the allowable exemption would exhaust the $52,955 exemption allowed under §34-34. There would be no exemption remaining available for the IRA or the SEP and the full value of the two accounts, $71,538.52, would be turned over to the trustee.

The Bankruptcy Court found that the creditor’s interpretation of §34-34 was contrary to the commonly accepted practice. The Bankruptcy Court ruled that the definition of “retirement plan” in Virginia Code §34-34 must be read narrowly to exclude ERISA-qualified pension plans. To hold otherwise would invoke federal preemption which would exclude ERISA-qualified pension plans in any event and possibly preempt the entire statute. It would frustrate the General Assembly’s intent to protect retirement plans.

The Bankruptcy Court ruled that the Virginia General Assembly confronted the inherent problems in using §55-19 and spendthrift trusts to protect retirement plans. It sought for the first time to comprehensively remedy the problems and to provide greater and better protection for retiree’s pension plans, in particular ERISA-qualified pension plans. The General Assembly’s chosen route was the establishment of a uniform exemption for all retirees. The Supreme Court’s subsequent decision in Patterson v. Shumate changed one of the underlying assumptions of the General Assembly by definitively holding that ERISA-qualified pension plans were not property of the bankruptcy estate. Had the General Assembly intended to adhere to the uniform exemption for retirees, it could have easily amended Virginia Code §34-34 to expressly reduce the exemption of non-ERISA-qualified pension plans, such as IRAs and SEPs, that were covered by Virginia Code §34-34 by the amount of any ERISA-qualified pension plan excluded from the bankruptcy estate or exempt from creditors in a state court proceeding. It did not. It accepted that ERISA-qualified pension plans could be reached by neither bankruptcy trustees in bankruptcy nor creditors in state court and it expanded the exemptions available based, in part, on this premise. The 1996 General Assembly protected rollover contributions. In 1999, the General Assembly added Roth IRAs. With some restrictions, the 1999 amendment also placed IRAs, SEPs, and Roth IRAs on the same footing as 401 plans and other ERISA-qualified pension plans. This partially reduced the inequality between those plans, although it did not completely eliminate it. The Bankruptcy Court ruled that the creditor’s position in this case ran counter to the expanding protections provided by the General Assembly over the last decade and the judicial role of liberal construction of exemption statutes. Its implicit construction contracts the exemption and magnifies the very inequality the General Assembly sought to minimize.

The Bankruptcy Court overruled the creditor’s objection to debtor’s claim of exemption. The amount of the exemption of the IRA and the SEP under Virginia Code §34-34 was computed without regard to the ERISA-qualified pension plan. The IRA and SEP were exempt in the aggregated amount of $52,955 plus any additional amount allowable under Virginia Code §34-4.