Question
I need advice from other woodworking companies who have been sued by their machinery leasing companies. I owe 6 payments of $900 each plus 30 months of late fees. The leasing company sent a letter demanding we bring our account out of the 60 day late column and pay off the ridiculous late fees.
Well, obviously, if I had the money, the payments wouldn't be late. I lost 95% of my revenue to the Chinese 4 years ago, just 12 months after signing the lease. The corporation who leased it was dissolved last year. My father and myself are personal guarantors on the lease. I have nothing but a pile of charged off credit card debt, so I am judgment proof. My father has assets, but is a pensioner, and can't afford to pay them. Also, the machines have been moved to an undisclosed location, so repossession won't be an issue.
Should I just settle for a default judgment or try to fight it myself? I will not hire an attorney. Every time I do, they only run the bill up and then run me around in circles. I have never made $125 an hour doing manual work, so I refuse to pay a schmuck in a suit that amount of money to shoot emails back and forth.
Forum Responses
(Business and Management Forum)
From contributor J:
A good lawyer can save you lots of money. The first call is free. You must be talking to the wrong attorneys.
I have been in similar tough positions before. You need to lay it out to the lease company - tell them your financial position. You have no money, and you have the equipment. You have to work with that. You might offer to sell the equipment and give them the proceeds, plus the difference between principle (as if it had been a purchase) and the proceeds. They can threaten you with what, a lawsuit? They know that ties up time and money, and it's the last thing they want to do, but they can't let onto that because they can't bully you with that fact out in the open. So you actually are in a relatively good bargaining position. Tell them what you are willing to do, and tell them they can take that, or sue you. Then shrug your shoulders. They can hear that, even over the phone.
At the moment, you are behaving like a total loss from their point of view. You are not, as far as I can see from your post, co-operating. You have effectively stolen their asset and if you have 30 months of late fees, this is not a recent problem. They do not want to sue you. I only ever took legal action on people who were clearly unwilling to work with me to achieve a reasonable outcome. If, as a borrower, you behave like it's my fault, as a lender, that your business has troubles and/or fails to keep promises and/or avoids contact, then I am going to assume that you not only don't have the ability, but also don't have the intention to deal with the problem. Lenders deal with lack of ability all the time and, in my experience, act in a businesslike manner about it, and I would always try to make sensible arrangements. When I worked at a bank, I made an agreement with one guy that as long as he paid in 50p (about a buck) every week on Friday, I would give him time to resolve issues. He did. The buck was irrelevant, but his act of paying it in told me at least once a week that he remembered he owed the debt.
If you continue to play silly beggars and hide (steal) their asset, then they will (I certainly would) consider that negotiation has reached its conclusion and that the only course left is legal. And by the sound of it, your Dad is going to bear the brunt. But I repeat, they do not want to sue you. They want you to behave like a businessman and start negotiating in good faith.
Now that I only have a few payments left, they want to take back their machine, sell it for a profit, and then sue me. I never said I wouldn't pay them. I just told them the payments will not be on time and will not follow a certain schedule. When I get me some money, they'll get theirs. And that's the way it's been working until now.
If you are looking for advice on how to negotiate a possible workable deal with the leasing company, I think you'll get a lot more helpful responses. There's a lot of info that would be helpful in forming a better response, but here is my two cents.
It sounds like the business went south, and having seen this happen to others, I can sympathize with why you are fed up. The frustration at not only losing your business, but the entailing aftermath, can take quite a toll. That said, it is not right to leave your dad holding the bag on this, because he has assets, even if he was a full partner. He has far less time to recoup on something like this, both emotionally and fiscally, than you do. If you are no longer in business, and don't plan on resurrecting it, you should sell the equipment, and get both you and your dad out of this bind. The stress of holding onto it is not worth the toll it will take on the both of you, and your relationship. If you do end up going to court, you will lose the equipment in the end, and they can go after you for the balance if they get a judgment for same. This can be garnished out of your wages if you go to work for someone else, as well as possibly be taken out of future income tax returns, not to mention the havoc a collection attorney can have on your checking account. Money today, gone tomorrow. Not to mention, fees will continue to mount during this time. I watched a guy go through this, and you want to avoid this at all costs. It will age you more than you realize.
From your post, it sounds like you owe:
$5,400 (6 payments @ $900/ea)
$1,500 (30 months of late fees @ $50/ea?)
_____________
$6,900 Total
After approaching them with a balance sheet showing your income vs. expenses, making them acutely aware of your ability to pay, and letting them know that you want to fulfill your obligation, even though the business was dissolved, you need their flexibility and help to do so, and negotiate a way that will satisfy both parties. With first payment in hand, I would explain the obvious... That you have already paid off 86% of the loan, but being that the business is dissolved, and you are dealing with it personally, I would make an offer to make monthly installments of $192 for 36 months, if they will not waive the late fees (which they most likely will not), and $225 for 24 months if they will.
Although this should not be the case, if you cannot come up with $192 or $225 each month, then you should find a buyer and sell the equipment (assuming you can get an amount that will satisfy the balance). If you want to keep the equipment that bad, you will find this income. If your income prospects are that bad, it is time to hang up working for yourself, as much as that would hurt, and suck it up, and get a job.
You need to be proactive and step up and deal with this... The first thing you need to do is contact them and let them know you are in a process of putting together a plan to satisfy their request and that you will contact them within a week to do so (give them a specific date). Do not miss this date for contact. Even if you have not finished putting everything on paper, contact them and let them know. Every step of follow-up contact made with them will increase the trust level, and you will find that they will be more willing to work with you when you follow through on what you say.
Beginning today, make a log of all your contact with the company, whether they call or correspond with you or you do. Keep accurate records, and most importantly, when you submit your proposal to them, include the first check in the form of bank check, and on what week each month they can expect to receive each payment. Money talks... Bullsh*t walks.
They will most likely do this for you, as they have already realized 86% of the balance, and this will avoid them taking you to court, and trying to collect from you, which can take upwards of the same amount of time.
Again, if it is your desire to keep this equipment, despite the circumstance, you need to find the money. Even if it involves mowing lawns or delivering newspapers. By the way, since you are paying this off personally, one benefit will be that by making these payments on time, your personal credit rating will also.
You should get legal advice, and the cheapest way to do this is to join a co-op program like prepaidlegal.com. For $10-$20/month, they will answer any and all questions for you, and even write a letter or two on your behalf.
Now, for a reality check... Many businesses fail for many reasons, but that does not make you a failure. There are many seasons to your life and it is only when you totally give in and stop persisting to the next plateau, that it seems as if you've failed. Pick yourself up, dust yourself off, deal with your circumstance, and you can, with dignity, move onto the next season and plateau.
If it has gone to suit, how are you prepared to defend against it? What jurisdiction is it in? Do you know and are you prepared to follow the rules of procedure for the jurisdiction in question? If this is an actual suit and has been issued a docket number, are you prepared to respond to things like Notices of Motion, Notices of Hearing, preparing a Response (that's a technical term of art in the legal world), attend status dates, prepare and/or defend against summary judgment motions, etc.?
I happen to be married to an attorney who practices in the world of pre- and post-judgment collections, and I hear these things every day at the dinner table. From what I'm reading, you're probably not entirely prepared to defend yourself in such a suit, following all of the rules of civil procedure as well as the local court rules (not to mention the rules that happen to be in force inside the particular courtroom of whatever division your suit is in).
If this has gone to suit, you need an attorney to protect your rights. Especially if you're leveraged to the eyeballs. Do not presume that you're "judgment proof. There's no such thing. And since you're unwilling to seek legal counsel, how in the world are you able to rely on this or verify that it's even remotely true?
If you don't seek representation in this, then may the Gods be with you, and here's hoping that the other side doesn't try to attach too much of your stuff in satisfaction of your personal guarantee. Apologies if I sound a bit forceful on this topic. My point is that letting a lawsuit go on without a competent legal representative is only going to hurt you - and in ways you cannot foresee right now. Don't take that chance. Bite the pride bullet and get help.
As to being judgment proof, no one is. In CA, a judgment is valid to collect for 7 years. Do you want to spend the next 7 years doing business out of a shoebox because any bank account or asset is subject to seizure? Eventually they will get payment, or the equipment and a hunk of your hide! $6900 isn't a lot of money these days. Talk to the leasing company, get a second job that pays you something (obviously cabinet making isn't right now), and you'll have this behind you in 4-6 months.
For the rest of us onlookers, leasing is generally not a good long term business practice for long lived assets. The down payment is less, which attracts the customer, but when you get into trouble, you don't even own the asset till the end of the lease, if ever. You can't even sell it to pay it off without permission from the leasing company.
Additionally, hiding the equipment while in a collections lawsuit does absolutely no good and just complicates matters for you. During the course of every collections suit there's something called a Citation to Discover Assets. This is a meeting with you, your attorney, the other side's attorney and a court reporter. It's a standard and non-optional part of every collections suit. In the Citation you'll be pointedly asked to disclose details about and including the exact whereabouts of the item in question. This also involves a few hours' worth of questions about your financial situation. If, during the Citation, you say that the item's been moved to an undisclosed location - and if you don't budge on this - the other side will file a motion with the court to compel you to produce this info. If you persist in not producing the whereabouts, the judge is going to make you produce this information anyway. Failure to do this results in a contempt of court charge and will ultimately result in... well, let's just say that you may want to practice holding good and tight to your soap while in the shower. And no, I'm not kidding.
You and your father, as personal guarantors, are only going to be hurt badly if you get petulant on this. So you may want to revisit some of your preconceived notions, fix some situations and learn to play nicely in the sandbox with others.
2) Do find a lawyer. No one who is in the trouble can be clear headed about the proper course of action. My suggestion is talk to your tax advisor or CPA. They will probably know one or two good attorneys with heavy business experience.
3) Package the machinery if you are not using it. Make sure it is operational when it is mothballed. You are still responsible for its welfare, and its operational condition.
When I leased the machines, I had over $500k in revenue. 6 months later, major customer said "sorry champ, we're going to China." Last year I had less than $50k in revenue. My company that signed the leases went out of business last year for obvious financial reasons. I was able to start under a new name.
I never said I didn't want to pay off the remaining payments. I do refuse to pay a late fee of 10% per month on top of an 18% interest rate. That's predatory lending and I refuse to be taken advantage of any more. Besides, this leasing company is the only vendor who is receiving payments from my bankrupted company, so they should have jumped up and down with joy every time they got a check.
So here's the real story of why I think they've filed suit. They have fully recovered their capital outlay and a profit of a little over $10k. This is what their profit would have been if I got a good interest rate. So now they think they are going to play games and take their machines back to make even more profit. The rep from the leasing company said "they are gravely concerned about their investment." I told them "you should have been concerned 30 months ago, not now, you stupid schmuck in a suit."
Also, they intentionally misled me in the beginning of this month. They told me if I mailed a monthly payment, they would not proceed with legal action. They took my money, then sued me anyway. Their underworked, overpaid schmuck in a suit attorney claims he was not aware of what my rep told me.
It's too bad your business went to China, but you made a very poor business choice by allowing that one customer to become 90% of your business. Even if your customer didn't go to China, he was in a position to really put the screws to you if he found that he was such a large percentage of your business.
Now, you have stolen the assets of the leasing company to start another company. I bet you just closed the door and never formally filed bankruptcy. Commonly done, but wrong! If you file, you would be in a better bargaining position, ress of course the issue of the personal guarantee. The other company assets also belong to your bankrupt corporation, not to you personally. How about the truck, registered to the corporation? You need a lawyer.
When we signed the lease, my credit score was 720. Not bad, let alone the fact that I was only 21 at the time. My father's score was and still is 810. My score now is 490. I believe our rate was due to the fact that the supplier told the leasing company we were in a hurry and had to have the machine right away. After all, we had to make all that product that was later discontinued.
I have this attitude because every time I have sued someone or been sued myself, the same result always happened. The lawyer makes all the money, and you always lose. We have decided to represent ourselves in court and allow the company to get a judgment. After all, a judgment is just another silly piece of paper. They can't collect on it. I showed them. They think they're being cute tough guys, so instead of getting paid the remaining payment owed to them, they get to spend their money to get a certificate of accomplishment called a judgment.
And by the way, that judgment, the "silly piece of paper", some day, some where, will rear its silly head and bite you in the ass. It's collectable against the personal guarantors for up to 7 years, and you'll never know when they will hit you or your dad's bank account. It's only "silly" if you are planning on being broke for the next seven years. If so, that's quite a business plan.
Those of us who have survived in business know that the vendor must be paid before you take any money home, or you will soon end up in exactly your situation. I sincerely hope that the fools that you are currently representing in court will hire an attorney, and try to work out a formal payment plan with the company so as to preserve some self respect. From the info you have presented here, I think you will lose in court.
So let's talk about morals here. Is making a promise to someone and then rescinding it 10 later ethical? The VP of the leasing company said that he was not aware of the arrangements made by his subordinate.
Also, my lease says they may charge a 5% late fee, not 10. Every time I call up and complain or write to have the charges removed, they say don't worry about it, all late fees are waived after all rental payments have been made. Also, throughout the course of the lease, they always refused to accept my insurance carrier's certificate of insurance. Their solution - make me pay for an overly expensive policy offered by an affiliated company. How convenient - I 'm sure they didn't get a kickback on that.
Oh yeah, I never did mention this in my first post, but we ended up paying the same price for a 4 year old machine as we could have bought a new one for. Two months later at IWF, I saw one there, and the company told me how much it was. So let's talk about ethics and morals here, too. Shame on me for being dumb, but is it right for a large multimillion dollar machinery dealer to charge double what the product is worth?
I have learned many lessons over the past few years. My knowledge has cost far more than an Ivy League education.
Here's some pointers:
1. Don't buy, rent, or lease a machine to make a product line for a customer unless they give you a contract for the product. If they insist that a product be machined a certain way, kindly suggest that they purchase the machine for you.
2. Don't be rushed into making bad decisions. In my case, the product line had to be in the stores in less than 45 days.
3. Don't use family as personal guarantors. In my case, the nice machinery dealer told us that if we put my father on the lease application, it would be more likely approved. Well, of course it would. They have 2 dummies to pay them rather than just 1.
4. It's a competitive world out there; you define the terms when it comes to spending your hard earned money. On our end, our customers define how we will service their needs. We need to do the same to our vendors.
My goal is to settle this for the remaining payments that I owe, which as of today is less than $6000. I would like to pay this over a 12-24 month period. I have paid thousand already in late fees. I was never able to pay my own lawyers, so I'm not paying theirs. Is paying what is rightfully owed that bad?
I have asked the company many times to refinance the lease, but of course they always had a reason why they couldn't do that. The truth is, I'm just a number to them. I charged to court register, and they sued 25 people the same day as me.
Do you realize that when you go to court, the room will be filled with schmucks? Even the judge will have a suit on under that robe. How will this knowledge affect your behavior in said courtroom? Could it be that your problem with people in suits makes you feel as if you have been victimized/outwitted/outsmarted by them and prevents you from seeing what you have done to yourself? Why do you pursue a legal solution when you so clearly know the deck is stacked against you by all these schmucks? This really doesn't make any sense.
For me, it depends on what it'll cost. My credit is so bad, if I weren't a schmuck myself, I would have filed bankruptcy a few years ago. Good news is that it can't go any lower. I'm already in the bottom 1% of the country. But charge offs can always be negotiated as settled in full, and that'll boost my score by a lot. If not, they'll just drop off my report in only 2 years. That's why I don't play the chapter 7 card with them. But if I could settle this for what a greedy schmuck in a suit lawyer would charge me, only to end up with a judgment against me anyway, I would gladly do it.
After you have paid them off, you can negotiate on the late fees. They are going to say you can't. So make out a cashier's check for some portion of the late fees. Make a copy of the cashier's check and fax it to them, stating that this is all you can beg, borrow, or steal. They will respond.
You have made 52 payments - don't quit now. This is one of those hits that we all have gone through, but don’t wallow in it (I know a lot easier said than done). The goal is to get new business and be successful; you did it once and you can do it again.
Remember, unlike a charge card, the machinery you leased was collateral for the loan. You default, they get the machinery. Price you paid for the machine, and the terms you agreed to aside, they are obligated to work with you, but not in perpetuity. By the way, charge-offs stay on your credit for 7 years, bankruptcy for 10 years. Although you can rebuild your credit, if the charge-off's are not part of a bankruptcy, it will take you much longer to re-establish your credit for things like buying a home, a car, or whatever.
Never mind what a drag this will be if you meet that special someone and want to get married, or get a job, where they check your credit as a condition of employment, which is more and more rampant these days (although, admittedly, not a big issue in our industry... yet). If this happens, the frustration and emotional distress you are feeling now will be compounded.
The other thing to consider, is that when you go to court to represent yourself, it will be known as Pro Se, and in most states, if you own a business, you are required to hire a lawyer, and the court will not look too fondly on this, and in most cases, have a prejudice to this, and it works against you as it drags out the court's proceeding. Not saying it will in this case, but from what I'm told, it is fairly common.
I don't think the responses you have received have been overly negative, but rather a lot of guys are trying to show you different perspectives, and I guess what everyone is trying to tell you is that you are not looking at this from the right perspective. You've been given a lot of sage advice, so try to take the emotion out of it. If you were advising a friend or relative, what would you say to them if they were in your circumstance? You complain about the terms of the lease, but you signed it; you complain about the price you paid for the machine, but you didn't do the research on it; you complain about the fees for being late, but you signed it as a condition of you lease.
All that said, I think you have some mildly valid points, and although they will most likely be considered weak in a court of law, they could be argued. If a representative of the company made an agreement with you that by paying that $900 payment you could avoid it going to court, (here's the key) if you have proof of this (the letter asking you to bring it out of 60 days late from your original post, for example), it is to your advantage. If not, or you can't get the employee who promised this condition to admit to it, it's your word against theirs. With regard to 5% vs. 10%, this is another valid point, but the court most likely would just amend it to 5%, but you can't offer it as a reason as to why you didn't pay.
You really need to do a Ben Franklin on this situation on the pros and cons of keeping this machinery. So there's no misunderstanding, I want you to keep it. But the reality is, after doing a Ben Franklin on this (I did as an exercise), if you don't have the income to satisfy this or are unable to make arrangements with their lawyer for payment prior to court, in my opinion, you should let this go, as the cost to you mentally and physically will be more than you expect.
Ben Franklin
_____PROS_____ l______ CONS______
My gut feeling (and it is only my opinion) is that your dad already knows inside how this is going to go down, but is standing by his son, which is admirable... Sounds like a story that happened a couple thousand years ago. In any case, whatever happens, or however you decide to handle this, best of luck, young man.
I don't think that you will find sympathy here. The guys who have made it this far are the ones who found solutions to problems like yours. The ones who did not resolve their problems are the ones who are posting on MonsterJobs.com. No slam intended. But you can either focus on the problem or focus on the solution - that is, bringing more money into the shop. Now what else can you do to get that machine to pay for itself? Who have you talked to about outsourcing? I am assuming that you are talking about a CNC router. If so, have you checked with other industries like plastic, sign makers, other cabinet shops? What about designers, architects, local schools, the Chamber of Commerce, your local SCORE office? Talk to your suppliers and see if they can recommend someone who might need your services. I think you will get further trying to bring more money in than trying to hide what you are not using.
The lesson is, just because it's in writing does not mean it is legal. A clause in a contract that violates a person's statutory rights is not legally enforceable. So my hardheaded determination not to let the leasing company screw me paid off. The reason financial institutions get away with so many unethical practices is because most people will just roll over and let them stick it to them. I have certainly learned many lessons over the past 5 years through this ordeal. I hope my pain and suffering will help someone else. I am certainly much better prepared if I were to ever lease a machine again.
