Have you decided to a file a lawsuit against your debtor?

Do you know who counts as a defendant in your case?

When you file a lawsuit, include as defendants all people who may be responsible for paying a debt. Review your credit file for helpful information. It’s best to add all defendants at the beginning of a lawsuit, right when things get going, so that you can get them all served with copies of the lawsuit and reduce the chances for the litigation to drag it out. Among those defendants that should be named are:

• Guarantors: All personal guarantors or co-sureties liable as a matter of contract.
• Successor companies: Companies that have taken over the operations of your debtor, with no significant changes in ownership, capitalization (investment), or other aspects of the business (such as location, phone number, or inventory). For example, your debtor is Sam’s Bike Shop, since renamed as Sam & Sally’s Bike Shop but remaining under the same ownership.
• Issuers of bad checks: Persons or companies that have written checks for payments to you that have failed to clear the bank.
• Individuals who are liable as a matter of law: For example, your state may have a law that holds individuals or companies responsible for certain types of building contract violations, such as taking money from homeowners but not paying suppliers and subcontractors with that money.
• The principal to a contract: Sometimes the person who signs the contract is an authorized agent or employee, and not the person who’s ultimately responsible for payment under the contract. If the principal is undisclosed, you should go ahead and name the agent.
• Beneficiaries of fraud: If the debtor has transferred property or other assets out of his own name to try to hide the assets from creditors, your state’s fraudulent conveyance laws may allow you to sue the recipient of the property.

The above defendants go for ALL types of debtors. Below are additional defendants to look for when dealing with both incorporated and unincorporated debtors.

For unincorporated debtors, such as individuals and partnerships:

• Owners: A proprietor of a business.
• Partners: All general partners of a partnership.
• Persons who hold themselves out as owners: Anybody who claims to be an owner with you when completing credit applications or placing orders with your company.

For incorporated debtors, such as corporations and LLCs:

• Owners of startups: If a debt is owned by a new business, check to see if the corporation was formed at the time of your transaction. If not, for transactions that occur before incorporation, the business should be treated like a partnership.
• Owners of expired entities: If an incorporated business allows its corporate status to expire prior to the dates of your invoices, you can treat the business like a partnership. For example, your customer, Jones Company, Inc. allows its charter to expire in June of 2006 and your invoices are dated 2007 through 2009.

These are just suggestions, not a list of every possibility. Think creatively to make sure you include all potential defendants.

Start with Michigan Collection Services

No matter what you need help with, the Mullers are here to walk you through the legal collections process. There are no dumb questions, so don’t be afraid to reach out! If you’d like to know more about using our Michigan-based collection services, call 248-645-2440 or submit an online contact form.