Tenant is Long Gone – But the Debt was Never Paid
Posted by Bill Gray on June 15, 2009
[tweetmeme source=”your_twitter_name” only_single=false http://www.URL.com%5DSo, you gave your old tenant the opportunity to do the right thing and pay his debt; he gave you the salute and moved along without paying you a penny. He or she has now been gone over thirty days. What do you do now?
Doing nothing is not an option! In fact, doing nothing is a bad business decision. It is not fair to you, your business or your other tenants. Try skipping a credit card payment and see what happens. They will be on you like white on rice. Those who don’t pay their bills raise the prices for the rest of us that do pay ours. Rent is no different.
In my previous post, I explained the process of determining how much you are owed, and notifying the debtor. I recommended giving him 30 days to respond. If
he does not respond in that time-frame, it is time for you to take action.
You have several options to ensure that as long as your debtor refuses to pay you, he will have difficulty obtaining credit for any other purchases and rentals. Any of these options could result in you being paid what you are owed.
1. The fastest, easiest and least expensive option is to simply report the debt to Experian, TransUnion and Equifax. By reporting the debt as a collection account, every time he applies for credit, his debt to you will hit him where it hurts. Every future landlord, mortgage lender, bank or utility will see that he owes you money. If he can find credit, it will cost him a higher interest rate. Eventually, he may find himself in a position where he has no choice but to pay you what you are owed. Reporting the debt to the credit bureaus could affect his credit worthiness for up to seven years!
2. The next easiest, but possibly more expensive thing to do is to give the account to a collection agency. Most agencies work for a percentage of what they collect. If they collect nothing, you owe nothing. However, if they do collect all or part of the debt, the agency most likely will keep 35% – 50% of what they collect. Do not hire a collection agency from the Yellow Pages. For more information see my article, “How do I Hire a Collection Agency to Collect my Tenant Debt”.
3. The last, most time consuming, but possibly the most effective choice, is to take him to court. In many states you may represent yourself in Small Claims Court. Expect filing fees, service fees, etc. Having him served personally is very important and sometimes difficult. It is possible that you could spend your time and money and in the end lose, or end up with a money judgment for less than you feel you are owed. However, if you are successful and receive a court ordered money judgment, you will have much more leverage in collecting your debt. A money judgment may allow you to garnish wages and even levy bank accounts. Money judgments are often enforceable for ten years, and may be renewed for another ten. I will defer to your attorney as to whether this is a practical option for you. A local attorney familiar with the court system and state laws is the only one who can give you accurate advice on whether court is a viable option for your situation. I will say that there are states, such as Florida, where judgments are so hard to enforce that very few landlords invest the time and money to go to court. Your state may be different.
I am asked several times a week what option a landlord should take in an attempt to collect the debt he or she is owed. Several questions need to be answered before making this decision. Do you know where he is living now? What type of credit did he have when he moved in? What kind of income does he have? Did his lifestyle seem to exceed his income to a point that his credit rating may be important to him? What kind of person is he? What is the amount of the debt, and can you substantiate it?
If the debtor was pretty much a deadbeat with little income, or you have no idea where he moved to, I would report the debt to the credit bureaus. This can be done quickly and inexpensively. You will sleep at night knowing he did not get away with owing you money with no consequences. This option requires little time, effort or money and allows you to get on with running your business. It can also be very effective in getting your money. Reporting to the credit bureaus is one of the biggest tools a collection agency uses, but you do not need a full blown agency to report yourself.
If the debt was substantial, the debtor had a decent income, and you know where he lives, I would talk with an attorney about the possibility of taking him to court.
A collection agency would be my third choice only because the cost can be high and finding the best agency can be time-consuming. Also, you can always bring a collection agency into the picture down the road, should you wish a more assertive approach.
I can help you with your debt issues.
Contact me: Bill@thelandlorddoctor.com