FRAMINGHAM.....Your customer owes you big bucks, but when you call for payment, he stalls, crawls or simply ignores you. Classic signs of the dreaded disease of "deadbeatitis." When your customer finally meets with you, he claims that he will pay you in full out of the proceeds of a sale. Don't wait, seize the moment!

Company X said "carpe diem"! When confronted with all the invoices, its customer admitted that it owed $106,000.00 and claimed that Company X would get paid out of a pending sale. Once burned by prior broken promises, Company X seized the moment and hired me. I immediately sued and obtained an ex parte bank attachment and an attachment of personal property (bulk attachment). I requested and obtained a form of attachment that allowed the sheriff to make multiple attachments of the defendant's bank account. The attachments caught over $68,000.00. Not surprisingly, the deadbeat agreed to settle the matter now. Within nine weeks my client received $106,000.00.

FRAMINGHAM....Your corporate customer closes its doors and the guarantor does not appear to have any assets. You could simply write it off and forget it. Don't do it! Fight for your money! Company Y did - It hired me.

My initial investigation showed that within the past four years, the guarantor put his house into a "nominee trust." Recognizing elements of a fraudulent conveyance, I filed suit and obtained a real estate attachment both against the individual guarantor and his ownership interest in the "nominee trust." The Court set aside the fraudulent conveyance and entered judgment against the deadbeat guarantor and his defunct corporation. I directed the Deputy Sheriff to levy and suspend the sale of the deadbeat's property and then waited. The deadbeat guarantor eventually sought to refinance. When he did - "gotcha" - to the tune of seven-grand.

While this does not always happen, but it could happen for you. Armed with solid paperwork, an aggressive competent collection attorney who knows how to collect debts is a valuable ally in the battle for control of your money.

What You Should Know About The Homestead Act

The Massachusetts Homestead Protection Act protects up to $500,000.00 of the homeowner's equity from creditors. As of the date this Newsletter, the Homestead Act excludes from its protective umbrella debts incurred before the filing of a homestead declaration. This allowed you to assess whether a prospective customer and/or guarantor has sufficient assets available to pay for the credit sought.

However, the Federal First Circuit Court of Appeals, held that the Bankruptcy Code preempts the preexisting debt exclusion. So now a debtor can file a homestead after buying from you and then file bankruptcy and claim and receive the benefit of the homestead protection. If the debtor has less than $500,000.00 in equity in the property, you may be out of luck.

So what can you do? You have at least four options.

1. Request a Mortgage on a property before selling a substantial amount of materials;

2. Use notices of contract which are statutory in addition to judicial liens, which may have better standing on "avoidance" but which also may be subject to a later filed declaration of homestead;

3. Use UCC filings to secure payment of the debt owed to you or which you expect to be owed to you; and/or

4. Contact your state representatives or trade association to attempt to tighten the homestead statute to be available only if the exclusions are applicable no matter if the debtor files bankruptcy.

As case law is still evolving, no one knows which approach, if any, is fool proof. Before accepting a person as a guarantor on an account, do your homework. The best approach is to be prepared.

Armed with the knowledge of this major pitfall, you can make an intelligent risk-benefit analysis. If you plan to extend significant credit, you may want to get a UCC security interest and/or mortgage in your customer's assets.

Although hindsight is always 20/20, a bit of planning may help to reduce your liability. If you would like to discuss this further, please feel free to contact me.

Is Your Personal Guaranty Effective?

An important part of a credit application is the "personal guaranty." Yet, many suppliers of materials and/or services either don't seek a guaranty or don't review the guaranty when it is returned to them. Often a guaranty is seen as surplus. It is not . It may be your last chance to get paid.

One of a debtor's most prevalent tricks is to put the tag "president" or "agent" after signing the guaranty. Even if your guaranty says that it is a "per-sonal guaranty" or that the undersigned is "individually liable," a crafty "guar-antor" will still claim that they are not responsible because of the tag "presi-dent" or "agent" after their name. Don't leave this to a judge's discretion.

You can avoid this "defense" by refusing to accept any guaranty in which the "guarantor" attempts to negate individual liability. However, even if the debtor slips one by you, as happens to the best of us, don't abandon ship.

The Supreme Judicial Court in Bisonnette v. Keyes , 319 Mass. 134 (1946), held that the mere use of the description word "agent" does not by itself avoid individual liability. Decisions of the Appellate Division of the District Court can be interpreted to hold that where a guaranty distinguishes between the customer and the guarantor, the addition of the mere descrip-tive term "president" after the guarantor's name did not negate individual liability.

Although it would be better to avoid this dilemma, a properly worded guaranty can improve your chance of getting paid, even if the debtor plays it cute.

If you would like me to review your guaranty, please feel free to contact me.