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California Debt Collection: What Creditors Need to Know Before Settling Their Claim

debt-settlement.jpgIn many debt collection cases, the outstanding debt is settled before any court judgment is actually entered against the debtor. In an ideal world, this would be an unquestionably positive outcome for creditors. After all, debt collectors are simply looking to recoup the money to which they have a legal claim. Unfortunately, in reality, sometimes debtor parties do not follow through with the terms of debt settlement agreements. Further, if the settlement process is not handled properly, creditors could find themselves in an undesirable situation. Indeed, creditors could even lose important legal rights. Before settling a major outstanding debt, you should first consult with an experienced San Jose commercial debt collection lawyer.

How to Preserve Your Rights

The most important thing debt collectors need to know about preserving collection rights is found in section 664.6 of the California Code of Civil Procedure. Specifically, this section includes a stipulation that allows parties to reach a settlement before any court judgment is entered. In doing so, parties are also allowed to enter a request that allows the court in question to retain jurisdiction over the parties and the settlement agreement. In other words, debt collectors can include a provision within their settlement agreement that will ensure that the court can enforce the terms of the settlement agreement. This means that the court could potentially enter a judgment in the future if the debtor defaults on the terms of the agreement.

To be clear, this type of provision must be included in the settlement agreement at the request of the parties. It is not automatically included. Understanding and compliance with this section of California law is extremely important as the failure to comply could result in the loss of your creditors' rights.

What Happens If the Court Does Not Retain Jurisdiction Over the Debt?

If you fail to include terms to allow the court to keep jurisdiction over the debt in your debt settlement agreement, you will lose out on key rights. Indeed, in the event that the settlement agreement is breached by the other party, you will no longer have a straightforward debt collection claim. Instead, you will have a breach of contract claim. While breach of contract claims still come with the legal right to seek fair compensation, your options will become far more limited. The bottom line is that this problem can, and should, be avoided. Be sure to settle your debt the right way and let the original court keep jurisdiction over the settlement agreement.

Do You Need Legal Advice?

The experienced San Jose creditors' rights attorneys at Diemer, Whitman & Cardosi, LLP can help. Our team has a proven track record of success. To learn more about what we can do for you and your business, please do not hesitate to contact our San Jose office today to request your free initial consultation. We represent creditors throughout the Bay Area, including in Contra Costa County, Napa County, and Solano County.



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