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Improving the Claim

Part of the process is to consistently advance the creditor’s position regarding any claim placed for collection.

By Harold Stotland, JD

Anyone who regularly reads these columns knows that if I have a mantra, it is that commercial collection attorneys have to think like both attorneys and credit professionals. We always have to wear two hats, and part of that process is to consistently advance the creditor’s position regarding any claim that was placed for collection. I refer to this concept as “Improving the Claim,” and apply it to all commercial accounts receivable even before an account goes into default. At every stage of the process, a claim can be improved, even before it exists.

For example, every credit professional in charge of establishing credit lines for a customer should periodically update the information base about that particular customer. If we look at the claims we receive in our office, most credit applications are usually 3-5 years old and contain information that is often outdated. Even if personal guarantees are submitted with the claims, they also contain outdated information. Often the debtor corporation may still exist, but the party who executed the guaranty is no longer with the company, having sold out his or her interest. In these cases, “Improving the Claim” means creating and maintaining a good information base about your customers.

Another opportunity to achieve this goal is when an established customer wants to increase his or her line of credit. When a prospective debtor wants something, the creditor must then ask for something in return. Any time a credit line is being increased or a substantial period of time has elapsed since a credit application was completed, this is an opportunity for the prospective creditor to ask for additional information and security. When a credit line increase goes into effect, it is time to ask for a personal guaranty.

Since the advent of the Commercial Code, and the ability of banks and other financial institutions to obtain perfected security interests in all of a debtor’s assets, it is the unusual debtor that has unencumbered assets available on a bankruptcy liquidation. Usually, the bank takes everything, and there is nothing left for our creditors. The only thing that may be left is action on a personal guaranty, which is valuable security in most cases.

When the debtor requires a long-term payout plan and the debtor is a corporation, we ask for, and sometimes obtain, a personal guaranty. If there are unencumbered assets, we obtain a security interest in the business assets. By doing so, we “Improve the Claim” and enhance our client’s chance of recovery by taking them from an unsecured creditor to a creditor who has security to look to upon default.

When can attorneys seek to “Improve the Claim?” When we receive a claim for collection and it turns out to be a claim that is disputed, we will try to negotiate a settlement with the creditor’s approval. In those instances, we try to make certain that if a settlement is arrived at that requires periodic payments, the creditor can sue upon default for the full amount of the claim before settlement, or at least for the settlement amount with a waiver of all defenses. In obtaining the agreement with the debtor, we have precluded the debtor from delaying the entry of judgment by interposing a baseless defense.

Every claim at every stage of the collection process can be improved and enhanced by keeping good records. Every time a debtor promises payment or admits he or she owes the debt, but is unable to pay, constitutes a piece of information that, when properly documented, “Improves the Claim” by enhancing the ability of the creditor’s attorney to preclude baseless defenses. Each of those statements by the debtor that are properly documented in the client’s records with the exact time and date constitutes a legal admission that can be used against the debtor to support summary judgment or overcome a baseless defense.

Creditors always should remember that every time they deal with a debtor, whether it is a prospective debtor, one seeking an expanded line of credit or a debtor in default, it is an opportunity to enhance the information, security and collectibility of a future or defaulted claim. In addition, attorneys who represent commercial creditors always should apply the same principles at every stage of litigation.


Harold Stotland is a principal with Teller, Levit & Silvertrust, P.C. in Chicago, Ill., where he directs and supervises the firm's Commercial Collection Division. Contact him at

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