Advice for recovering long-overdue debt

July 5, 2006 7:07 AM

I'm trying to recover a debt owed to me (currently $1300+) by a client for whom I worked as an independent tech contractor in 2002-03. He's very slowly paid off a lot of the original debt ($5000), but he stopped making the payments almost two months ago with no explanation, and has been completely non-responsive to all my contact attempts ever since. It's a matter of very high personal importance that I recover the full debt in this case (because this is a very slimy guy, and because his company could not have started up or earned money without my work). I also need the money, so this is not something I can walk away from in that sense either.

Thank you for reading and for any advice you have... I'm way out of my depth on this one (I've been researching it as much as I can).

The debt started out as $5000, plus 5% APR compounded monthly in the event any of it was not paid, payable in full on August 11, 2003. After an intense amount of pestering on my part (and perpetual claims of having little/no money on his part), the debtor finally started a $74/week payment plan, which he stuck with somewhat consistently, and he's now paid me about $4300, meaning he currently owes $1300+ with interest (I haven't done the math yet -- it'll be complicated due to the erratically timed payments).

There's a good existing thread about a similar issue, but the assumption in that thread is that the creditor cares most about how *much* money can be recovered after commission fees. I care most about the *likelihood* of recovery (for example, I would be okay with the solution that costs much more in commission but has a much higher chance of success).

Finally: the geography is complicated, which might really complicate a court case (I've never been involved in any court case; that suspicion is from my research).
- This guy is the CEO of a small LLC that was incorporated as a "virtual" (web-based) company in Nevada and has had business addresses and operations only in NY and FL.
- My work for him was performed primarily at my home in NYC, secondarily at his offices in western NY and FL.
- We were in FL when we signed our contract re. the payment (although I'm not sure either of us has a way to prove that). His address and mine on the contract are both NY state addresses (mine in NYC, his in Allegany County). Our contract does NOT specify the state in which disputes should be litigated.
- All of his payments to me have been via PayPal and all our documentation/correspondence except the paper contract has been via email. I don't know his current business or home address.
- I do know he's done a very haphazard job of keeping his personal and corporate finances separate (and ALL his emails about why he couldn't pay me referred to his personal finances), so "piercing the corporate veil" should be easy; however, he has mentioned repeatedly (I have no way to know if this was a lie) that he is near personal bankruptcy.

Whew!

posted by allterrainbrain to work & money (16 comments total)

(IANAL, but I have done collections work in New York State.)

Quick question - is the contract in the guy's name or the LLC's name? If it's the latter, is there any sort of wording in the contract that he would be personally responsible for the debt?
posted by Lucinda at 7:22 AM on July 5, 2006

The name on the contract (I'm 99% percent sure of this -- I'm actually out of town right now so I can't look at the physical contract) is "John Doe, CEO of Company Name, LLC."

I have many, many emails in which he speaks of the debt in personal terms ("I would love to pay you," "I will pay you," etc.) and says he can't because of his personal finances and personal/family obligations.
posted by allterrainbrain at 7:49 AM on July 5, 2006

And I'm sure there's no wording in the contract that he is personally responsible for the debt.
posted by allterrainbrain at 7:50 AM on July 5, 2006

I took a client to small claims court and won. It wasn't overly time consuming, and it only cost $45 or so, which we recovered in the judgement.
posted by miss tea at 8:10 AM on July 5, 2006

Thanks miss tea -- in this case my concern is that a judgment would be the end of it. He wouldn't pay anything, or maybe he would somehow get the case thrown out by arguing it was being held in the wrong state (it seems like I should be able to file in NYC, but this guy just has a way of getting around everything and he's very aggressive/persistent).
posted by allterrainbrain at 8:39 AM on July 5, 2006

Another vote for small claims court. It's cheap and easy, unlike hiring a lawyer. Sounds like you've kept good records of all of your communications; I would think you have a pretty easy case. Print out all of those emails, organize the rest of your documents, and take him to court.

Good luck!
posted by LuckySeven~ at 8:40 AM on July 5, 2006

and yet another vote for small claims. it sounds like you have things pretty clearly documented, which is really good. you still might not get any money, but it's a start.
posted by lester at 8:52 AM on July 5, 2006

Ditto on small claims. It's cheap to file and a good place to settle things like this. Good luck.
posted by radioamy at 8:54 AM on July 5, 2006

alterrain brain, if someone ignores a small claims judgement, they can be found in contempt and levied fines and other consequences-- more serious than being emailed by you periodically. :) Even though it's just small claims it really ups the intimidation factor.
posted by miss tea at 9:00 AM on July 5, 2006

The issue is that the judgment looks like it would not be against him as a person, but against him as the CEO of the LLC.

When you're legally an LLC (even if you are really just one person), you're not personally responsible for the LLC's debts (unless a particular contract explicitly says you are, as Lucinda pointed out above).

A common strategy in situations like this one -- where a single person is hiding behind an LLC that in reality has been totally intertwined with his/her personal finances -- is called "piercing the corporate veil." From what I understand, that seems to be the only hope I have of making this guy be judged personally responsible for the debt as opposed to making the LLC be judged responsible (and I have no idea what income, if any, the LLC has at this point).
posted by allterrainbrain at 9:24 AM on July 5, 2006

alterrain brain, if someone ignores a small claims judgement, they can be found in contempt and levied fines and other consequences-- more serious than being emailed by you periodically.

Bear in mind that getting a court judgement is only the beginning - collecting on the judgement is generally up to the creditor, and results in the same problems you're having right now trying to collect. Having the judgment gives you some extra leverage, but it isn't a guarantee that he'll pay. It also will sap your time and energy to get the judgement in the first place, and collect on it afterward.
posted by gwenzel at 10:56 AM on July 5, 2006

I successfully recovered a $4000 debt through small claims court in NYC. The process was complex and long but I was able to find a lot of documentation and instructions online, which made it a bit easier.
posted by camworld at 11:12 AM on July 5, 2006

building on what gwenzel said about collecting, it'll be ten times rougher is the guy is in fact in Florida - it is a very debtor-friendly state.

(I would also recommend the small claims court route - fees for filing the case as a civil matter with the Supreme Court of NYC or Allegany County would cost you at least $500. You can add that onto the amount you're owed, but then it's a matter of collecting it...)
posted by Lucinda at 12:29 PM on July 5, 2006

small claims has positives and negatives. on the positive side you can tack on some punitive damages as well for making you put up with this crap. on the negative he still can string you along for years and not pay it through many loopholes. still worth the effort, but know that you don't wind up with a big check at the end of the trial.
posted by Señor Pantalones at 6:52 PM on July 5, 2006

This is why I'm asking also if anyone reading this can give me any advice about the alternatives with higher success rates.

For example: selling a debt to a collection agency seems to be usually called "not worth it" because their commission can be 30%, 40% or even 50%.

But in this case, I would *MUCH* rather actually recover $650 than get a likely-uncollectable judgment for $1300.

As I said, a judgment may be meaningless if he can convince a judge that the LLC has no assets (and I cannot convince the judge it's not a legitimate LLC but a part of his own finances).
posted by allterrainbrain at 2:21 AM on July 6, 2006

Lucinda (or anyone else who's had any involvement with collections), if you read this again I'd be hugely grateful for any further thoughts.

I'll report here on what happens (as specifically as I can without identifying any participants). I'm about to start the small claims filing in my NYC borough.

I still would be enormously grateful for any tips about collection strategy or any recommendations of collection agencies I should approach assuming I win the judgment.
posted by allterrainbrain at 5:38 AM on July 7, 2006