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Personal Guarantees Aid Massachusetts Debt Recovery

by | Dec 15, 2018 | Business Debt Collection

When offering services or products on credit terms to customers, it is advisable that you make them sign personal guarantees. Personal guarantees can significantly increase your chances of Massachusetts debt recovery.

A personal guarantee can act as a safety net in case if the business defaults and fails to pay off its debt. Such a guarantee from the business owner or stakeholders may incentivize them to make sure the debt gets paid so that they can avoid personal liability.

Unconditional Guarantee v. Conditional Guarantee

When it comes to personal guarantee, it can be divided into 2 categories; unconditional and conditional guarantees. The unconditional guarantee also known as an unlimited guarantee is when the debtor authorizes you, the creditor, to collect on full or 100% of the amount owed if the primary debtor fails to pay the debt.

On the other hand, conditional or limited personal guarantee is when both sides, the creditor and the debtor, set a limit on personal guarantee. This means that in case if the primary debtor defaults, the creditor’s recovery from the guarantor could be limited as to time or amount or both.

Statutory Interest vs. Contract Interest Pursuant to M.G.L.c. 231 Section 6C 

By the Law of the State of Massachusetts, contractual interest is added by the clerk of the court in all aspects. Here’s a quick overview of what M.G.L.c. 231 Section 6C states about the contract interest. Take a look:

Section 6CIn all actions based on contractual obligations, upon a verdict, finding or order for judgment for pecuniary damages, interest shall be added by the clerk of the court to the amount of damages, at the contract rate, if established, or at the rate of twelve per cent per annum from the date of the breach or demand. If the date of the breach or demand is not established, interest shall be added by the clerk of the court, at such contractual rate, or at the rate of twelve per cent per annum from the date of the commencement of the action . . .  …

You have the ability to control the rate of interest whether in your contract or credit application up to 20%. If you wish to charge more the Law Offices of Alan M. Cohen & Associates LLC can assist you in doing so legally. Many businesses charge 18 percent per annum as it is easily divisible by the months of the year. The choice as to whether you want the Commonwealth of Massachusetts to set your contract terms or set them yourself is something the experienced contract attorneys at the Law Offices of Alan M. Cohen & Associates LLC can assist.

Contractual Attorney Fees vs. Statutory Attorney Fees 

Absent a contractual provision allowing for recovery of attorney’s fees, the right to recover attorney’s fees is limited to a few statutory provisions, many of which are delegated to the court to decide. The Commonwealth of Massachusetts follows the American Rule that says that each side bears its own attorney’s fees absent a contractual obligation or statutory provision. The American Rule differs from the English Rule which allows the winner to recover attorney’s fees.

Once again, your contract or credit application is your first, and often last opportunity to control your money and the terms on which you do business. The creditor’s contracts can provide for an hourly rate, an agreed upon percentage of attorney fees and/or a “reasonable amount of attorney fees.  The experienced contract attorneys at the Law Offices of Alan M. Cohen & Associates LLC can prepare your contractual paperwork, including, but not limited to credit applications, personal guarantees mortgages, leases, master service agreements and much more.

In contractual provisions, the side that loses has to pay the other side’s attorney’s fees in a legal dispute as signed in the contract. By including the clause of contractual attorney, it may deter the parties from disputing, and make them want to negotiate in good faith to solve their problems amicably.

Homestead Subordination Can Lead to Collecting Your Debt 

Homestead subordination is another way of increasing your chances of recovering monies from debtor on secured claims. Homestead not just works for debtors but also for creditors. Here’s how: under homestead the homeowner who happens to be your debtor can declare up to $500,000.00 of the equity in their real estate as homestead to protect against creditor claims.  Bank mortgages regularly contain a clause in which the homeowner subordinates their homestead rights to the mortgage. Although untested, we see no reason why a similar clause in other commercial contracts would not similarly protect non-bank creditors.

Don’t Let the Guarantor Try to Escape Liability by Adding a Title

Usually the guarantor states that they shall be responsible jointly or wholly for repaying the outstanding balance of the amount owed to the creditor if the principal debtor fails to pay in a timely manner. The guarantor owes equal obligations as the principal debtor for making debt payments. Therefore, it is advisable that you don’t let the guarantor escape liability by adding a title, such as “president”. It’s best to discuss your loan agreement terms with a professional and an experienced commercial debt collection attorney at the Law Offices of Alan M. Cohen & Associates LLC before you proceed with an agreement. However, if you have already made the agreement and the principal debtor and guarantor are not making payment as agreed, then let our attorneys handle the case. We’ll pursue your case aggressively to try to ensure that you recover your money.

So, if you want to use your time and money to make money, call us today at the Law Offices of Alan M. Cohen & Associates LLC today to maximize the possibility that your deadbeat customer will pay you. Call us at 508-763-6604 or email us at [email protected].