The wave of business bankruptcies that seemed inevitable in March and April has not materialized yet. Some companies that were wrestling with debt and cash flow problems before the pandemic struck did file for bankruptcy, but other businesses have managed to use federal assistance, other available cash, and a rebound in business to avoid completely defaulting.
Wall Street analysts warn the other shoe could still drop, as additional debt that companies are taking on could prove to be too much to overcome. While there hasn’t been a bankruptcy tsunami, many businesses are unable to pay creditors. It is important for businesses that are owed money by other businesses to follow proper procedures when trying to collect debts.
Filing a prejudgment writ of attachment
If your efforts to collect a past-due commercial debt are unsuccessful, the next step may be to file a lawsuit for breach of contract. As the plaintiff, you must establish probable validity of the claim. It is important to document all communication efforts, whether they are successful or not. A knowledgeable collections attorney can inform you of your rights and guide you through the process.
Many creditors immediately file a prejudgment writ of attachment, which attaches a lien to the debtor’s legal interest in any property that is subject to levy after judgment. This may include:
- Cash
- Equipment
- Inventory
- Real property
This prevents debtors from liquidating assets in attempts to avoid paying debts.
Post-judgment action
If the court rules in your favor, the debtor may still not pay. At this point, you may seek a writ of execution, which will direct authorities to seize assets and sell them at auction to pay creditors. Even if the debtor is avoiding payment, you must always follow proper procedures in collecting commercial debt.