The next time you jump on the bandwagon and complain that bailed out banks are charging you too much for watching your money you might want to reconsider as it is after all “safe”. You may find it is actually a really good deal to keep it there safe and tucked away, rather than lending money to someone, investing it, selling products, or taking any risk in expanding your business, and creating new jobs. This sense of security will no doubt come from reviewing the high costs and slim likelihood of collecting money owed to you in the State of Connecticut, which I hope you recall came from reading this article.
- Costs to Sue:
If you own a business, rent property, sell products, or have a contract with someone and find yourself having to file suit, the State of Connecticut has two venues for collection actions; small claims for those under $5,000.00 and Superior Court for those claims over $5,000.00. For example; if you have 4 tenants you may be able to combine them on one suit, unless you are a caterer or dry cleaner with 4 clients who each owe you money. That’s 4 suits each with a small claims entry fee of $95.00 for a total of $380.00 just for the right to go to court.
These fees of course only get raised, not lowered, and since I started practicing law in 1998 Superior Court entry fees have climbed from $185.00 to $360.00 in 19 years. Therefore, if you have 10 people owing you each $6,000.00 that means to collect $60,000.00 you will have to expend (excluding legal fees, and Marshal fees or interest) $3,600.00 or 6% more of the amount owed!
- Interest Free Debts:
It gets better though, in addition to having to pay an entry fee in all Superior Court matters and in certain instances in small claims, you are required to have a Marshal “serve process” which are court papers on the defendants, adding another $75-$150.00 to your costs. Once you get a judgment (I won’t even get into how long that takes these days in small claims) you then will find you are no longer able to automatically collect interest on the amount awarded in the judgment due to a court case that “re-interpreted” the post judgment interest statute. This means if you had a contract that allowed 12% interest a year for nonpayment and got a judgment, that judgment is most likely no longer accruing interest after the judgment. If that is not scary enough, the court routinely orders individual debtors to only make minimum payments of $140.00 a month or $35.00 a week. So now you lost out on post judgment interest, but instead of paying you back timely, a debtor can make only the minimum payments ($35.00 a week) and effectively they have (thanks to your lawsuit) an interest free loan with reduced payments from the ones outlined in your contract. So for example, if you are owed $10,000.00 and had a contract with interest provisions of 1% for each month late and “reasonable” attorney’s fees (these are usually in Connecticut held to be 15% of the principle) you should receive a judgment for principle plus pre- judgment interest (assume it’s been in default one year) with reasonable attorney’s fees totaling $12,800.00 plus court costs. Then the debtor can, if they are individuals and not a business, pay you back $140.00 a month over the next 7.6 years with no interest accruing. So are you feeling sorry that you only pay your bank a few dollars to safe guard your money yet? Any individual in Connecticut you may lend to, sell to, contract with or do business with can simply allow a contracted debt to become a judgment interest free loan repayable at $140.00 a month or $35.00 a week.
It actually gets better because if the debtor thinks that he is getting a bad deal and stops paying, you must now “pay” the State for the “privilege” of getting paid on your judgment by spending $105.00 for each Bank or Wage Garnishment/Execution requested against the debtor. The fee applies whether or not it’s successful! So now you obtained your judgment likely with no post judgment interest and the debtor makes one monthly payment and stops paying. So you then pay the court another $105.00 (this cost was $0 in 1998) to get a Bank execution, give it to the Marshal (who gets to keep 15% of the amounts collected as his fee but his fee doesn’t reduce the debt its added to it) and you actually find the debtors bank account, because he was unfortunate enough to have left it in his name and are told by the Marshal you “hit” for $2,500.00. Well the next thing that happens is the debtor (because he is instructed how in the papers served on the bank by the Marshal as required by the courts) files an exemption claim alleging the monies are exempt because they are either; social security, unemployment, worker’s compensation or alimony monies. You get another hearing at which you most likely still need an attorney and the court rules (example only) that $1,500.00 is money from unemployment and the first $1,000.00 is “protected” from creditors, so you get nothing but more costs for the “permission” to pursue your judgment.
III. Ways to Protect Yourself:
You may feel at this point that collections in Connecticut are just a big money pit with everyone taking a cut but the creditor. Though this may be the impression most people get, you will still have to make a living (assuming you haven’t gone out of business) so you decide to do business in Connecticut anyway. The first thing you should know about is if you are entitled to a Mechanic’s Lien (See Connecticut General Statutes Section 49-33) for labor or materials supplied to improve a property in the last 90 days. If your work fits the description of allowed work and you have the right under the law, you can have your attorney file a Mechanic’s Lien against the property on which the debt is based. This offers a little protection, although since it is only good for one year and if the debtor is under or threatened by foreclosure you will most likely not recover anything if your lien is after the mortgage being foreclosed.
Always ask for employment information when signing a contract or doing business with individuals. You may try and incorporate this information request into your contracts. This will give you a place to start once you do get a judgment. It will still cost you $105.00 (current 2017 amount) for the “privilege” of enforcing your judgment by applying for a wage execution. Additionally, only approximately 25% of the debtor’s net paycheck is subject to garnishment and the debtor can ask the court to reduce the amount.
Always have a signed contract by the party you are doing business with and in that agreement should be a term for reasonable attorney’s fees and costs. In Connecticut, a signed contract gives you 6 years to sue on a breach of contract and an oral contract has to be sued on in 3 years. One strategy that may be employed to avoid the lack of Post Judgment Interest is to wait the full 6 years, if the contract allows interests to accrue on default. Suing at the end of the contract term instead of at its breach may allow for an increased judgment amount and give the debtor an incentive to make payments to avoid the interest. This will seem to most, the lesser of two bad choices.
- Debt Collection and Public Policy in Connecticut
Well you may have concluded by now that doing business with people in Connecticut is risky? It really is to some extent all over the United States as the days of hand shakes and promises are distant memories but the current fee and legal structure in Connecticut is truly of serious concern to individuals and to small and large businesses alike operating in the State. Imagine a paving company who has operated by an unsigned proposal estimate and has to sue 1 out of 5 debtors for payments averaging $8,000.00? Or an advertising company collecting on delinquent accounts, hospitals collecting on unpaid bills or simple installment loans, all are at risk of being uncollectible under the current system. The best you can do is try and stay appraised of the current laws as the majority of debtors know them well and know how to take advantage of them. Don’t be afraid to report delinquent payments to the three national credit bureaus and to check the Connecticut Judicial Branch Website: http://www.jud.ct.gov/ for individuals or businesses with prior court cases before dealing with anyone in State. I would also advise a credit check prior to an installment contract and try and get as much money upfront as possible on every deal.
Some simple Connecticut General Statute changes could seriously decrease delinquencies and lower the costs of doing business in one of the most expensive states to operate in. Reinstating post judgment interest at 10% for all judgments would re-instill needed leverage and incentives for debtors to repay debts timely. A leveling of the playing field by lessening court notices of debtor’s rights would lessen a perception that they are the favored party under the law. Eliminating the heavy fee structure that is attempting to raise fees (taxes to be honest) for the State’s coffers from aggrieved parties when they are already facing damages, would lower the costs of suit. Attorneys of record should as of right, be allowed to issue bank and wage executions without court approval as they do with judgment liens. This would stream line the process and remove the need for execution fees. Debtors should have to register their current employment information with the court at the simple request of the Creditor without a costly hearing. This information could also be furnished from the Department of Revenue Services should the debtor not respond to the request. Finally, the entry fees should be reduced in light of electronic court filings which have reduced man power requirements for the court system. Without a fair, quick hearing with the application of impartial laws and means to reclaim one’s debts, our businesses and society will sit on their money and do nothing with it.
If you feel that Connecticut law is skewed too much in favor of debtors and defendants then please contact your local Senator or Representative, as well as your Chamber of Commerce and the Connecticut Business and Industry Association (CBIA), and ask them to enact laws that protect all creditors, who are creating jobs, doing business, lending money and hiring workers in Connecticut. Without changes to the current system lending and business costs in general will continue to rise in Connecticut as collection rates decline and costs of collections increase. And of course with all the money sitting in the Banks they may just want to charge us more for “protecting” it.
Attorney Geoffrey Einhorn is the Managing Partner of the Law Offices of Geoffrey T. Einhorn, LLC. Located in at 741 North Colony Road Suite 1 Wallingford, CT http://www.einhornlawfirm.com/ Telephone 203-269-1665. The Firm represents commercial and individual creditors from national banks and businesses to mom and pop businesses. The above information was for informational purposes only and not a solicitation or intended as legal advice.
