What are consequences of a defaulting on a commercial debt?
Monday, November 28th, 2011 at
5:11 pm
Question by GL: What are consequences of a defaulting on a commercial debt?
My business is now out-of business so I am not worried about a commercial credit report but I am concerned about the possibilty of it showing on my personal report or my wages being garnished. One of the collections is from a telephone company (early termination fee of ,000) that I signed for personally but it was used for business. An attorney is now calling and I want to know what kind of action they can actually take?
Best answer:
Answer by cridler
You signed for the debt personally, it is a personal debt. Cut a deal as fast as you can to get them to take a lesser amount you can pay or put on terms.
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Unfortunately, you are responsible for commercial debt for your business where you personally guaranteed it.
Because of the personal guarantee, a default in the commercial debt can be reflected on your personal credit report and should be included as a liability on your personal balance sheet, if you are applying for a bank or other loan.
Applying for a loan without listing the debt on your personal financial statement would constitute bank fraud and could be a Federal offense.
That being said, it is not a foregone conclusion that you must pay the debt this attorney is attempting to collect. However, your question is vague as to the capacity in which the attorney is acting.
For example, it might be one thing if he/she is acting on behalf of the original creditor and quite another if he/she is acting as or for a collection agency trying to collect the debt.
You should not be concerned about a wage garnishment for this debt, until after a judgment has been entered against you by a court of competent jurisdiction. Wage garnishments cannot be imposed by creditors generally. They require court approval, which can only be given after you have had your day in court.
You don’t say that has occurred, so if they are threatening you with that, they are engaging in bullying tactics to try to compel you to pay up.
You don’t have to talk to the attorney or anyone attempting to collect the debt. In fact, it is usually better not to speak with them.
Write the attorney a letter, stating that you will not engage in telephone conversations and that they must put all their communications in writing. Send the letter by registered mail, return, receipt requested.
If the attorney is acting as a collection agency or is representing a collection agency and not the original creditor, tell them you don’t know who they are and do not believe you are obligated on the debt.
If they actually take the unlikely step of instituting suit against you, go to court and demand on the record that they “Validate” the debt.
This means that they have to prove that they have the right to collect the amount owed.
If they are not the original creditor, they will have to prove that the original creditor transferred the debt to them and that they are now the lawful owner. Just because the attorney says so, does not mean it is true. They should have documents transferring the debt. Make them produce those documents.
They will also have to prove that you owed the original debt in the first place. It is quite possible that they will not have and will not be able to get the proof required from the original creditor. Make them prove their case.
Lastly, they will have to prove that the attorney/collection agency has the legal right to collect debts in your State.
Any judge will give them some time, usually 30 days, to put together the information. More often than not they won’t be able to do it and their claim will be dismissed. Once it has been dismissed by the court, it can be removed from your credit report.
Depending on the actual facts, your advisor may want you to demand validation without going to court. That is ok. It is a way to accelerate the process. The Fair Debt Collection Practices Act is very specific and can be used to force them to remove the stain on your credit report without having to wait for court action.
In any case, if they cannot do all of these things, they are not able to validate the obligation. DO NOT PAY THEM anything. Paying them, even the full amount, may not satisfy the obligation.
It is quite possible that you will be able to remove, not only the collection, but the underlying debt from your personal credit report.
You really should be under the guidance of a reputable credit restoration service or a debtor’s rights attorney.
Good luck!