Let us say that you have placed your former customer for collection and your agency’s demands as well as local attorney demands have not been successful. Both your agency and your attorney believe that litigation (provided the amount due falls above your suit parameters) is your only hope of being paid. If the former customer filed for bankruptcy, you can forget about a lawsuit and write off the receivable. In this situation, if you want to have any chance of collecting, your agency along with your attorney will review all documentation supplied along with a review of their internal efforts and investigation and make a recommendation to you regarding the filing of a lawsuit against debtor.
SOME THINGS TO CONSIDER BEFORE FILING
Upon agreeing to litigate, your agency will then provide their attorney all of the information they have on your claim. This includes: amount due, principal and interest; debtor’s contact and phone number; nature of your business; details of any dispute and creditor’s response with copies of memos and correspondence. Additionally, they will provide the attorney with any documentation they have including: credit agreement; contracts, leases, personal guarantees, promissory notes, and NSF checks; purchase orders, delivery receipts, invoices, and statements of account; etc. The attorney will use this information during the legal demand process to try to bring the debtor to the table as well as use to substantiate their pleadings if suit is filed.
If the attorney has exhausted all their demands with no positive result, the next step is to consider a lawsuit. Before bringing a lawsuit, you want to be a sure as possible that you have a good chance of winning. It is going to cost you some upfront money to file a lawsuit and it would be silly to spend it if the debtor is out of business and you have no personal guarantee or if it is a highly contested debt and debtor has a good chance of successfully defending it. If you are going to file a lawsuit, you need to determine whether any of the following debtor defenses are possible:
- Could the debtor claim a prior payment?
- Is the amount due an offset?
- Does the debtor have a basis for a counterclaim?
- Is the debtor disputing the balance and has documentation to back it up?
- Is payment barred by the statute of limitations?
- Were the goods and/or services provided deemed inferior by the debtor?
If any of these defenses are possible (and there are others) then you may want to think twice before filing a lawsuit. Why? Because if you have to go to court the suit may become expensive and there is a chance you might lose, thereby increasing your cost with no reward. Also remember, having a personal guarantee always helps, but also is no guarantee because the guarantee may be worthless if the individual has no assets. Furthermore, if a defense is expected, can you supply a witness at trial? Keep in mind the expense of travel as well as time your witness may need to be deposed or attend and testify at trial.
Many times the filing of a lawsuit will bring your debtor to the table to negotiate a payout or settlement outside of court. Also, keep in mind that at any time during the process, the debtor can file bankruptcy, which will immediately halt any legal proceedings or they can simply go out of business.
COURT COSTS AND FEES
All lawsuits have costs associated with them and your agency will provide you with the attorney’s contingent fee requirement as well as any non-contingent fee requirement.
Court Costs – Included in the suit costs will be:
- The cost of filing a summons and complaint.
- The cost of serving the debtor.
- Costs for various required attorney actions during the course of the lawsuit.
The attorney will require, in advance, their estimated costs for filing a suit and obtaining a judgment. The amount required will vary based upon jurisdiction and the venue where the lawsuit is filed. In addition, these fees are not negotiable as these costs are set by the courts.
These costs, however, most times are non-contingent and may not be lost. If you win, the court costs in connection with the lawsuit may be recovered from the debtor and you are entitled to a full return of the costs advanced if the debtor is required to pay costs as part of the judgment. .
Attorney Suit Fees
Essentially, these fall into two classes –contingent and non-contingent. Contingent suite fees, i.e., a fee based on the amount of the account as well as the amount collected. In addition to the contingency fees already applied to any monies collected, suit fees may also be charged. In essence, the suit fee is an additional fee the attorney earns for filing suit, no matter if you are successful in collecting.
The attorney may require a non-contingent fee to handle the case. This is a portion of the fee which attorney will earn upon the filing of suit. The non-contingent suit fees be applied towards the total suit fee the attorney earns which normally does not exceed a total of 10%.
HOW LONG WILL THE AVERAGE CASE TAKE?
If everything goes the attorney’s way and you get a default or no acceptable defense judgment, you can figure on six to nine months. However, every case is different and if the debtor puts up a fight it could take several years before a resolution is reached. The “wheels of justice move slowly” and creditors right litigation is no different.
COLLECTING A JUDGMENT
You have won your case and received a judgement from the court against your former customer, now all you have to do is collect the money due. If the debtor is located in the jurisdiction that the suit was filed then garnishments, marshal/sheriff levies, i.e., direct action against the debtor is possible. However, collecting a judgement can be a complicated matter. The lawsuit should always be filed in the jurisdiction of where the debtors and their assets are located. Using a national agency that has the experience as well as database of local attorneys who specialize in collection litigation is a plus. A national collection agency has highly trained staff members who are familiar with the various laws of each state and their expertise affords them the opportunity to “quarterback” your attorney. Their goal is the same as yours, to conclude the matter as quickly and professionally as possible and maximize the money that is recovered. Some of the benefits of using your agency to handle your lawsuits:
- The agency can employ local attorneys who are bonded and insured to move the case as quickly and expeditiously as the local courts will allow.
- The agency can act as an effective conduit between you and the local attorney, thereby collecting the maximum amount in the shortest possible time while protecting your interests.
- The agency has more expertise, in collecting debtor judgments, in terms of volume of accounts and trained and available staff than any law firm. It is their business and their only business.
In the event that an account that you submit to your collection agency winds up with an attorney for litigation, before filing a lawsuit, carefully evaluate your chances of winning before you throw good money after bad. However, many times a lawsuit it is your best and only chance of collecting.