Expert: Christine Janklow - 4/6/2010

Question
QUESTION: I had a small LLC business which recently closed. I owe quite a bit on my SBA line of credit through Capital One. I haven't been able to make payments and the account has been turned over to a collection agency. She has threatened me with taking my assets, charging me a tone of money in fees for lawyers, etc. I faxed a letter requesting to work out a monthly payment which I can afford and requested not to work with this particular person. I got a letter today from the same person stating that I individually and and my company have sufficient assets to warrant civil legal proceedings. She told me I couldn't sell any equipment from the business. I was going to sell it to pay them. It's in storage. I am working part time and am willing to make payments on this but I can't come up with what they want. Should I file for bankruptcy? I'd rather not. My husband has been supporting the household finances. The house is in both our names but everything else is in his name. If I get a lawyer how am I suppose to pay for that too? I've worked out arrangements with all my other credits.  Thanks.

ANSWER: Julie:
Thank you for the inquiry. Based on the information you provided, I can suggest that if the debt has gone to a "collection agency" not a "law firm" they themselves can not sue you, nor should they be using that as a threat. If it is a law firm, particularly one located in your home state, they may have those intentions and you should consult with a lawyer to discuss your options. That said, the "collection agency's" only job is to collect what is owed, and as much of it as they can get as a settlement. They don't make payment arrangements. You would need to get Cap One to recall the debt and try to work something out with them directly. If you can not, than depending on what you owe, you might offer up a lump sum settlement for a fraction of the amount and ask for terms to get that paid in 6 months or less. As for the sale of assets, it is unreasonable to assume that before anyone has a judgment or lien that those assets belong to them. Either way, the sale of most business equipment rarely yields enough to repay debt in full and whether you or they sold it there would likely be a deficiency which you would be responsible for. Don't offer up any more information to the collection agent as she is going to apply every angle to pressure you for payment. Also you must consider if your SBA agreement is attached to your real property as an asset. Get in touch with the original lender to see if they are still willing to work something out so you can get back on your feet and not fall further behind with the loan. I hope this answer was helpful and would appreciate you taking a moment to provide a positive rating so others may benefit as well.

Respectfully,

Christine Janklow

---------- FOLLOW-UP ----------

QUESTION: Thank you very much for the info. It is a collection agency I'm dealing with not an attoryney's office. They told me on the phone that Cap One is garnishing my federal income tax return. They also verbally told me that I can't sell any equipment from the business. I would like to sell it to put towards the bill. Should I talk to Cap One regarding equipment? Keeping it in storage seems pointless for both of us.  Thank you.

Answer
Julie:
As previously stated, you are getting a lot of information, some which could be very misleading as it is coming from a partial source. I do not believe the creditor has the automatic right to garnish without first getting a judgment or lien allowing them to levy or garnish anything.They may have the right to offset, if there is a banking relationship with the lender. As for gaining access to refunds on federal payments without a judgment. Whomever this collector, they are clearly aggressive and in fact may be violating some of your rights under the FDCPA. For more about this visit www.ftc.gov  As I said, you better go to the source on this one and ask your primary lender what the deal is and if at this point they are willing to work something out. Screen your calls from this point until you get the facts. This will spare you from getting defensive or offering information that can be used to collect the debt before you understand your options. If the collection agency keeps threatening you with unsubstantiated claims, contact your states attorney generals office to see if it is appropriate to file a complaint. As well if you have your original loan documents you might consider having an attorney review them and see if your equipment is part of the collateral pledged and what happens in the case of default. Hope this all works out for the best. Good luck.

C. Janklow