Obviously, credit unions exist on the premise that loans that goout to their members will be paid back. When that contract betweenlender and borrower is broken, most credit unions have a protocolon how to handle the default.

Here are some questions to consider when determining whetheryour current plan is the best one possible for the health of yourcredit union:

• How much debt is recovered utilizing the current plan?

• Is the rate of recovery satisfactory?

• What is the incentive for borrowers to make good on theirdebt?

• Does the current process have legal backing?

• What steps are in place when attempts to collect on a debtfail?

Whether a credit union handles its own collection process oruses an outside agency, there are times when legal help isrequired. Some red flags that indicate it may be time to enlistlegal help include:

• The debtor is ignoring telephone and mail correspondence;

• The credit bureau report on the debtor reflects late paymentsand/or default(s) with other creditors;

• Another creditor has filed a lawsuit against the debtor;

• The debtor has acted deceitfully;

• The debtor contests the validity of the debt; or

• The debtor has retained counsel.

Any or all of the above situations can benefit from the debtorhaving to answer to an attorney representing the credit union. Asour law firm has dealt with hundreds of these situations, I willwalk through the steps we take to ensure that the money owed to thecredit union is recovered.

The first step a law firm should take when working oncollections with a credit union is to launch pre-litigationinvestigation entailing searches on the debtor to uncovereverything from addresses and other contact information, socialmedia, employment records, credit reports, and property and otherinformation that may aid in the collection process.

The preparation and mailing of a demand letter is the secondstep. Demand letters from a law firm are very effective inprompting a response from the debtor. Upon that response, the lawfirm should then attempt to negotiate a settlement and put it inwriting, even if the agreement is for the debtor to make theaccount current immediately.

In the event that an agreement is reached for the debtor torepay the debt over time, that settlement agreement would besecured by a “confession of judgment,” which is similar to a“consent” judgment but signed by the debtor prior to litigation.This confession of judgment is filed with the court if the debtordefaults on this agreement.

When this happens, we then enforce the judgment we filed incourt. That enforcement includes damages, interest and attorneys'fees and costs. We then handle collecting on the post judgment.Those collection activities may include: A creditor's examination,state income tax garnishment, periodic or non-periodic garnishment,judgment lien, order to seize property and receivership.

In some cases, collections require seizure of property eitherthrough repossession or foreclosure. There is a legal process forthis that requires requests to be filed and orders to be issuedfrom court. Court officers then seize the property and eventuallyliquidate it.

An extreme remedy for commercial property is receivership. Thisis when the court appoints a receiver to take control of thedebtor's estate, and is reserved for cases when garnishment andseizure of property is unsuccessful or if the lender sees a benefitin keeping a commercial enterprise operable.

The benefit of receivership is that it erases any other liens ordebts on or involving the property, and removes legal liabilityfrom the credit union. The receiver is responsible for handling theliquidation process of the property.

Collections and other remedies for recovering debt areunpleasant but necessary tools that credit unions must useeffectively for their overall financial fitness. When the processisn't working, credit unions would be wise to consider using a lawfirm that has experience in navigating these proceduressuccessfully and can complete the process efficiently andthoroughly until the debt is returned.

Frank Simon, Esq. is founder and managing partner of SimonPLC. He can be reached at 248-720-0290or [email protected].