Effective Collections in a Troubled Economy

By: Stephen E. Jenkins

b. Choice of Law provisions: The Lease Agreement should provide that the Lease is subject to the laws of the state where the Lessor is located.

c. Forum Selection Clauses: Most lessors prefer to file suit in the State Courts where the Lessor is located, and an exclusive forum selection clause in the lease will assist the Lessor in meeting that goal. However, the Lessor may want to reconsider this strategy in favor of filing suit where the lessee is located (see below).

d. Confession to Judgment provisions: Some States allow the Lessor to include in their Lease Agreements a provision whereby the lessee confesses to Judgment in the event of a default. By including a confession to Judgment provision in the lease, a Lessor can proceed directly to entry of judgment in the event of a lessee’s default in payment. However, many States refuse to enforce a contractual confession to Judgment Agreement. For example, in California the Courts require that a Confession to Judgment be entered into after a default has occurred, and requires that an Attorney declaration accompany the confession to judgment stating that the attorney has counseled the lessee and has recommended that the confession be signed.

e. Granting of Blanket Security Interest: Under UCC Article 9, the lessor’s claim is secured by the leased equipment. In order to maximize the lessor’s leverage, many lease agreement contain an additional granting of a blanket security interest in the lessee’s assets. By including such a provision, the Lessor can utilize the rights and remedies afforded to secured parties under UCC Article 9.

2. Employ Work Out Strategies

The best time to avoid collection problems is to act before a lease default becomes significant. In most cases, the lessee is more likely to work with its creditors if the problems are identified early on. Before referring the case to outside counsel, the Lessor should consider working with its customers to remedy lease defaults by employing work out agreements. A well drafted work out or forbearance agreement will contain many of the following provisions:

a. Stipulation as to the enforceability of the lease documents;
b. A complete waiver of defenses to enforcement;
c. A Stipulation setting forth the agreed upon liability, and agreed repayment terms;
d. A release of any or all liability on the part of the Lessor, whether known or unknown.

By entering into a Work Out Agreement, the Lessor can restructure payment terms to avoid a declared default, and at the same time obtain an enforceable acknowledgment that its lease agreement is enforceable. By utilizing such an agreement the Lessor can minimize costs of litigation.

3. Maximize Use of Outside Collection Counsel

Once it has been determined that in house collection efforts are unsuccessful, it is imperative that the matter be immediately assigned to outside counsel for immediate action. In most States, the rule of law is “first in time, first in right”. The first creditor to file suit has a significant advantage over later filing creditors, to successfully collect the debt. It is at this point that the use of Forum Selection Clauses should be seriously reconsidered. As we said, the chances of recovery in litigation are significantly increased if the Lessor is the first to file suit. Since many states contain prejudgment remedies, such as Attachment or Replevin, it is to the creditor’s advantage to file suit in the lessee’s state and to utilize prejudgment remedies. By doing so, the creditor can secure a priority claim over the debtor’s assets and maximize the chances of recovery. Thus the Lessor should use outside counsel to determine these issues and proceed accordingly. Networks of attorneys such as LEAN provide the Lessor with a network of highly experience counsel to assist the Lessor in handing outside litigation efforts.

4. Effectively Respond to Bankruptcy Filings:
Unfortunately, even the most aggressive efforts at collection can be thwarted by the debtor’s filing of Bankruptcy. However, not all is lost if the Lessor aggressively monitors and participates in the Bankruptcy proceedings. The Bankruptcy Code offers significant creditor protections such as the right to move for payment of administrative rent, the right to move for relief from the automatic stay, and the right to be treated as a secured creditor. Again specialized outside counsel may assist the Lessor in dealing with a lessee Bankruptcy.


Stephen E. Jenkins is a partner in the law firm of Hemar, Rousso & Heald LLP, located in Encino, California. The firm specializes in creditors' rights, Bankruptcy and collection matters, and has been representing the Equipment Leasing industry for over 25 years. Mr. Jenkins is a frequent author and lecturer on legal topics, including lessee equipment collections and real property foreclosure matters. He is both a past Legal Chair, as well as a past member of the Board of Directors of UAEL and the ELA Legal Committee.

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