Hi Jay,

You are entirely right. A large part of my practice consists of collections work. This is a problem that we encounter all the time. To some degree it is preventable up front. Try to get some credit references up front, especially bank references. In the event that they go belly up, you will know where to go to satisfy either your prejudgment remedy (garnishment if your state permits) or satisfaction of your final judgment.

Another method is to require them to set up an escrow fund with your firm in X amount of dollars. You can bill your searches against the escrow account immediately upon completion, and replenish the escrow when your client pays the bill. In this case it is best to have a written escrow agreement (preferably drafted by an attorney) which clearly explains how the system of immediate payment and replenishment will work.

The easiest method of dealing with the problem client up front is to decide on how much credit you are willing to extend to them. In this case you take a risk of extending a limited amount of credit to them until you are comfortable with their ability to pay you.

Dealing with the delinquent client after service has been rendered is a little more tricky. Very often they do not have the funds to pay you, and as you say they disappear into the night. If you are dealing with a corporation of LLC rather than an individual, you have an even larger problem because these entities are specifically formed for the purpose of limiting liability. In this case you may need to look for a way of suing the individual alternately . A few months ago ( I think last Spring)I posted a long expalantion of how to do this in response to one of Loretta Reed's posts. If you do a search, you will find it.

If you are faced with the prospect of a problem client going out of business without paying you for services rendered,the best method of protecting yourself is to apply for a prejudgment remedy if your state permits it. In Connecticut the remedy permits you to freeze the client's real estate, bank accounts, accounts receivable or non-exempt personal property to the level of the debt owed to you. You thereby become a secured creditor, and to the extent that they have any assets, you will be assured of payment if you win your case.

Once a client has successfully filed for bankruptcy, all collection efforts are stayed. You would be required to file a proof of claim with the bankruptcy court. Traditionally unsecured creditors received little or nothing for their claims. I lost approximately $800.00 in the Bridgespan bankruptcy. The new law may improve things for creditors, but it is really too early to tell.