1. Set-Off and Recoupment.
   Often a business may be buying from, as well as selling to, a customer, or be holding the customer's funds or property. When that customer does not pay its bills, the creditor may be able to recover by deducting the debt from money it owes the customer or applying the customer's funds or property. A sometimes overlooked, but very cost-effective, "self-help" solution.
2. Foreclosure.
   When real estate has been pledged as collateral for a commercial debt, the mortgage or other lien document usually grants the right to foreclose "by advertisement," which does not require filing suit. The process involves a six-week notification period followed by sale of the property at a public auction. The creditor may bid all or part of its debt at the sale, and may take ownership of the property, unless the debtor redeems by paying the sale price.
3. Repossession.
   A creditor that holds a lien on personal property (e.g., vehicles, machinery, inventory) may take possession of the property, sell it, and apply the proceeds to the debt. This remedy is available if the debtor will voluntarily relinquish the property, or at least not resist repossession. The property must be sold in a commercially reasonable manner.
4. Claim and Delivery.
   This is a court proceeding to recover possession of personal property subject to a lien, where the debtor will not cooperate in its release. If the property is at risk of deterioration or damage, a court order allowing its seizure and sale often can be obtained relatively quickly.
5. Attachment.
   This remedy allows the seizure of the debtor's property by court order on an expedited basis where the debtor has assets located within Michigan, but the debtor itself cannot be found. Under appropriate circumstances, the court will allow the creditor to take possession of the debtor's property, and ultimately dispose of it to satisfy the debt.
6. Injunctions.
   In situations involving fraud, and where the debtor is likely to move, transfer or conceal its assets, a creditor may be able to obtain a court order on an expedited basis to seize the assets and hold them for the creditor's benefit.
7. Special Liens.
   Under Michigan law, businesses such as construction contractors, warehouses, transportation and moving companies and vehicle repair businesses have lien rights against their customer's property. By following procedures that apply to the lien in question, the creditor is permitted to sell the property to satisfy the customer's unpaid bills.

* This outline is for general information purposes only, and should not be considered or relied upon as a legal opinion or legal advice.

Post-Judgment Remedies.

If the approaches outlined above are not available or cannot be achieved, the creditor must satisfy the outstanding debt by obtaining a judgment. Typically, this is done by filing a lawsuit; however, companies are increasingly turning to "alternative" dispute resolution methods, such as arbitration. In most instances, a court judgment will be imposed to enforce an arbitrator's award. Once a judgment is in place, whether via litigation or alternative proceedings, there are several avenues for collection.

1. Seizure of Property.
   Michigan law permits a judgment creditor to obtain a court order for the seizure and sale of the debtor's property. These orders cover all types of property, including real estate, personal property and intangible property such as shares of corporate stock. Deputy sheriffs and other authorized court officers carry out the seizure and sale.
2. Garnishments.
   At the request of a judgment creditor, Michigan courts will issue writs of garnishment directing third parties holding the debtor's property, or owing money to the debtor, to deliver the property or funds to the judgment creditor. Garnishments may be directed against financial accounts with banks and brokerages, against wages, and against the debtor's customers. Michigan income tax refunds are also subject to garnishment.
3. Judgment Liens.
   A creditor holding a judgment is allowed to record a judgment lien with the register of deeds in any Michigan county. Once recorded, the lien covers all real property that the debtor owns or later acquires in that county, and remains in effect for 10 years. The lien prevents the debtor from selling or refinancing its property until the judgment is paid.
4. Charging Orders.
   If the debtor is a member of an investment partnership, limited liability company or similar venture, the creditor can obtain an order requiring that entity to pay the creditor any income or other distributions that would otherwise be sent to the debtor. A charging order overcomes the problems frequently encountered in attempting to liquidate a debtor's ownership share in a closely held investment.
5. Installment Orders.
   This procedure is useful where the debtor appears to have significant income but the exact source or amount cannot be determined. If the court concludes that the debtor has structured a compensation arrangement to hinder creditors, the debtor will be ordered to make periodic installment payments based on the reasonable value of the debtor's earning capability.
6. Post-Judgment Injunctions and Discovery.
   If the debtor will not voluntarily pay the judgment, the creditor may move for an injunction preventing the debtor from disposing of any assets until the judgment is satisfied. Such orders remain valid for two years, and often include a requirement that the debtor fully disclose all of its assets and income. Judgment creditors may also take discovery from third parties that owe money to the debtor or possess information concerning the debtor's assets.
7. Individual Liability for Company Debts.
   As a rule, owners of corporations, limited liability companies and limited partnerships are not personally liable for the company's debts. There are exceptions, however, that impose personal liability where the company has been under-capitalized, where "insiders" have removed company assets, or in cases of fraud. Company owners may also have given personal guaranties which make them subject to collection for the company's debts.
8. Fraudulent Transfers.
   Debtors often shift assets to family members, trusts or shell companies to avoid paying a judgment. Michigan law allows the creditor to take legal action directly against those transferees to require them to return the property or pay the judgment.
9. Receiverships.
   Where the creditor proves fraud, misappropriation of the debtor's assets or other abuses, a court may appoint a receiver. Operating under court supervision, the receiver takes control of the debtor's property, collects money owing to the debtor, pursues claims against corporate insiders, and otherwise secures and delivers payment to creditors.
10. Foreign Judgments.
    Michigan allows judgments from courts in other states, and some instances other countries, to be enforced through the Michigan court system, using the same procedures available for Michigan judgments. Generally, judgments from federal courts are also enforceable to the same extent as Michigan judgments.

© 2005 Walton & Donnelly, P.C. All rights reserved.