“Fool me once, shame on you. Fool me twice, shame on me.” This old chestnut holds a lot of meaning for the business person that has agreed to resolve an already defaulted account.

The business has already been fooled once - perhaps by a customer that would not, or truly could not, keep its payment promises. Often, such situations are resolved, before and after filing suit, with a second set of promises - a modification of the customer’s original payment obligations. The challenge in such a situation is how to make sure the promises are kept the second time - how to keep the business person from being “fooled again.”

Several options are available to “secure” the payment of the debt. The first is actual, traditional security - the pledging of some asset to the promisee through an indemnity deed of trust, security agreement or similar device. In many circumstances, however, the defaulting customer either doesn’t have any asset to pledge, or is unwilling to pledge that which he has.

The next level for facilitating payment is the use of a consent judgment, generally with an agreement not to execute if certain conditions are met. The benefit of this device is that if the customer fails to keep the promises that are the condition not to execute, the creditor can begin court-backed collection efforts immediately. Also, a consent to judgment entered in a circuit court of the state of Maryland operates as a lien on any real property owned by the debtor in the county of entry, which can be a significant benefit.

Both a deed of trust or similar security device, and a judgment lien by operation of law, will usually give the creditor a better position if the customer files bankruptcy - a not-uncommon occurrence in this arena. Provided that the lien has been in existence a sufficient amount of time prior to a bankruptcy filing, among other things, the creditor may be treated as a secured creditor and given an enhanced position in the bankruptcy action.

The lowest level of protection is the use of a promissory note, with or without a confession of judgment provision. A promissory note is just another set of promises to pay, and may not be any more collectible than the original debt. The note may contain a confession of judgment provision, which simply allows the creditor to have a judgment entered immediately upon default. A confessed judgment may be reopened on a relatively liberal basis; thus, confession of judgment is only marginally better than a mere promissory note. Nevertheless, obtaining even a bare promissory note from a customer may be quite valuable in itself, particularly when there is a concern that the original obligation suffered from some defect, perhaps concerning the value of the services or materials, a defect therein, or perhaps even the statue of limitations. Substituting a new set of promises for the old makes a great deal of sense in those situations.

In any event, the choice of a collection facilitation device requires a fair degree of thought and analysis of the circumstances, not to mention focused negotiation. This firm has extensive experience in assisting clients in maximizing their return on defaulted commercial promises, and stands ready to do the same for you.