Law Firm Finance: clients cash poor but asset rich?

A friend saw a client on Facebook who owed her money, and the woman was posting an advertisement to sell a vehicle. When you hear stories like this you hope her proceeds from the sale of the car went to pay the attorneys fees. Maybe she’s actually going to get caught up on the mortgage.

If your client’s financial woes stand in the way of your bills getting paid, consider settling debts with assets. Of course we focus on legally transferable and marketable goods, and the value of a second vehicle might satisfy the debt owed to the lawyer who may have a kid heading off to college who needs wheels.

I asked Attorney Tamara M. Paulun, of Chicago’s Teller, Levit & Silvertrust to share some insight on options in seizing assets. Note: the information contained in Ms. Paulun’s response is for informational purposes and is not intended to be legal advice. You should contact an attorney where you live if you need legal advice.


Q: How can attorneys seize assets to satisfy attorney fee debt?

A: “The first step, of course, is to obtain a final judgment for the amount of your outstanding legal fees. I also recommend recording a memorandum of judgment in the county where the debtor resides and owns real estate. This will effectuate a lien on the debtor’s real property and provide additional leverage in your collection efforts. Once the judgment is in place, you can begin with enforcement measures.

First, I recommend reviewing your file for any asset information you many have on your debtor–where does he bank, does he own real estate, is he employed, who are his major customers, etc. If you have banking information, a good first move is to issue a third party citation to the financial institution. If you’re lucky, the bank will identify funds of the debtor that it is holding and you will be able to enter a turnover order for those amounts. A wage deduction is another good place to start, if you know where the debtor is employed.

If you are dealing with a functioning business and happen to know who the debtor’s large customers are, you can issue a third party citation to those customers for any amounts due or coming due to the debtor. If you don’t have any of the foregoing information, start with a citation to discover assets served on the debtor or, in the case of a corporation, one of the debtor’s officers.

When the debtor appears in court, you will be able to examine him under oath to obtain his asset information. Likely, by the time you’ve done all of this, you will have either satisfied your judgment, in full or in part, or received a notice of bankruptcy filing, at which point collection efforts must be ceased. If you’re dealing with a functioning business, you can also conduct a levy on the personal property of the business. However, since levy sales are costly and time-consuming, I don’t recommend them unless you are fairly certain that the business has property of significant value in the form of inventory or equipment that can be readily sold.”

Some attorneys add language to their engagement agreements indicating that collection efforts may include asset seizure and acceptance in lieu of cash payment for attorney’s fees. During economic downturns it might make sense for a client to trade the agreed value of an item for an outstanding account balance if the amount likely earned in a cash sale is less.

Of course anyone accepting goods in lieu of cash should review professional responsibility, tax, and accounting considerations.

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