Debt Collection from a Corporation in North Carolina

Debt collection from a corporation can bring different challenges than collecting from an individual. Does the company have assets or is it insolvent? Can a civil law suit be initiated to collect from the owner of the  business rather than the company? In what court should I file this litigation.

The basics of debt collection

First let’s remember the three basis of debt collection litigation:

1) Is filing this lawsuit going to leverage the debtor into an immediate payment or into a payment plan?
2) Do we have the paperwork in place to obtain a judgment efficiently and cost-effectively?
3) If obtained, can we collect on the judgement?

When an individual owes your business money, it may make sense to proceed without an attorney in small claims court. Small claims court allows a quick opportunity to obtain a judgment without the assistance of counsel with an opportunity for a new trial at the District Court level if your small claims case is unsuccessful. However, with a business debtor, it often makes sense to proceed immediately with your debt collection action in District Court. Corporations are required to obtain counsel if they wish to defend a lawsuit in District and Superior Courts, which may be a factor in obtaining payment or, at a minimum, a payment plan from the small business debtor through settlement.

Is the debt collectible?

It’s also important to consider beforehand whether or not this debt is collectible from the company. Judgments are good for 10 years in North Carolina, which is effective in collecting from an individual. However, if businesses aren’t paying their debts, that company may not be around to respond to the civil summons. North Carolina allows businesses in good standing with the state to maintain their corporate shield, which generally prohibits individual owner liability. There are some exceptions to this rule.

First, if the business is not in good standing with the state, that business no longer is entitled to corporate protections. In that case, they are merely individuals doing business under a company name and subject to liability. North Carolina also allows some creditors to proceed against an individual owner debtor by “piercing the corporate veil” of the business. This theory allows creditors to get judgments against an individual owner who simply uses his business as an “alter ego” to avoid liability. We’ll have more on piercing the corporate veil in an upcoming blog.

We can help.

Contact a Raleigh business commercial/retail debt collection lawyer to understand your options. An experienced can help determine if it is worth attempting to collect debts through a civil lawsuit. Maginnis Law, PLLC is a Raleigh law firm with retail collection lawyers practicing small business litigation. The firm also practices in Cary, Wake Forest, Zebulon, and surrounding areas. Contact the firm today at 919.526.0450 or through our contact page.