DEBTOR DEFENDANTS TAKE ADVANTAGE OF DELAYS

When a debtor is served with a summons with the name of our firm on it as plaintiff's attorney, some of our clients falsely believe that the defendant's resolve not to pay the debt melts like butter in a hot pan. While that may have been the case 30 years ago, today we have a different legal environment. Illinois has more than 70,000 attorneys - 37,000 in Cook County alone. There are more than enough attorneys to go around so that each plaintiff and defendant can retain one. As easy as it was for the debtor to persuade the creditor to extend credit; that same debtor can convince a hungry attorney to defend the collection suit for a few hundred dollars.

To make matters worse, a new Supreme Court rule states that, in cases of debt under $5,000 the defendant doesn't have to file a written answer to the complaint, and the plaintiff doesn't have the right to take any discovery. Here we have a situation where an astute debtor can force a creditor to prove its case in court, and the debtor doesn't even have to show up to testify. Furthermore, under this 'small claim' rule, no motions for summary judgment are permitted. Prior to January 1, 1997, small claims were matters in which damages sought were $2,500 or less. We could pretty much live with that, but the bulk of commercial litigation actually lies between $2,500 and $5,000.

How will the new Supreme Court rule influence the decision of our clients to commence litigation? Notwithstanding the fact that it is now easier for the debtor defendant to stay the day of reckoning, the reality it that about 80 percent of the time commercial defendants don't even file an appearance. Judgment is entered shortly after the return day. We should also bear in mind that many defendants, with or without attorneys, who do file appearances do so only for the purpose of negotiating a payment program. What we are left with then, will be that small group of seriously troubled debtors who take advantage of the system and delay the matter by requiring a trial and, in doing so, test the willingness of an out-of-town creditor to come in and testify. These contents boil down to two basic situations:

1. Matter Being Contested in Good Faith

These are matters in which the debtor has urged a defense and possible counter-claim within a reasonable time after delivery of goods or performance of services. Most of these cases don't end up in our hands. The creditors we represent are, for the most part, responsible manufacturers or service organizations. They expend a lot of energy trying to satisfy their customers or clients. If there is a bona fide dispute, we urge our creditor clients not to undertake litigation without a commitment to the necessary costs and to supply witnesses to prove their claim and defeat a possible counterclaim.

2. Troubled Debtor Trying to Delay

Frequently, we have multiple claims against a troubled debtor. When we have this situation, we always tell both the new and existing creditors that we are representing more than one creditor. Generally, a certain number of these cases will have local clients or representatives who will appear to testify. In these situations we have to concentrate on those suits which we can bring to trial, and in doing so, force the debtor to either come to the table and talk to the creditor body or seek insolvency relief sooner rather than later. The aggregation of claims in one law firm is an advantage to every creditor involved.

It is very difficult to sit at my desk, having filed several lawsuits against a particular debtor, and realize these matters will not come to trial for six to twelve months and that in each case, the debtor has taken the position that the merchandise is nonconforming. Faced with this situation, even though we have to consider filing an involuntary petition in bankruptcy. In these cases, the creditors must be willing to advance the appropriate fees to commence litigation.

To summarize, Illinois creditors are faced with another new challenge. We need to find ways to overcome delays in litigation and to attach the debtors' assets before they are dissipated. A cardinal rule of commerical credit for us to keep in mind is that the debtor cannot preside over its own funeral or dissolution. Creditors must be involved. Only creditors' scrutiny of the process can bring fair application of debtors' assets for the benefit of the creditors.

The material contained herein is not to be relied upon as a substitute for consultation with your attorney.