Collection Agencies And Other 3rd Party Options: In Court

By Dean Kaplan+

 

Small Claims Court may be used if collection agencies can't collect on a debt

When collection agencies or your credit department are unable to collect on an account, you may decide to pursue the debt in a small claims court

Collection agencies are one of several options available when a credit department needs to look outside the company for third party debt collection help. When a credit department has exhausted all its in-house accounts receivable collections options, it may be time to look for help outside the company. There are several outside third party possibilities available. This is the first article in a six part series which will discuss third party collection options. This article will focus on pursuing outstanding debt through the small claims court.

Once it becomes obvious that a credit department is not going to be able to collect on an open invoice, the next step is to decide if going outside the company to pursue the debt is a good idea. Sometimes, the amount of the outstanding debt is not large enough to warrant the time and expense required to continue to pursue payment. In this case, a credit department may decide to write off the bad debt, and move onto collecting other more feasible open accounts. Other times, the amount may not be huge, but it may be large enough to make pursuit in the small claims court system attractive.

Usually cases brought to small claims courts are disputes involving a relatively small amount of money. Plaintiffs typically present their cases to judges or court commissioners and relatively little legal paperwork is required. A big benefit of this legal venue is that once the case is heard by the judge, a final decision is made almost immediately. Although the exact rules for how to pursue filing a case in small claims court differ from state to state, the basic procedures are similar in all states. There are a few states which require that the plaintiff (individual or company) must appear in court on his or her own behalf. California, Nebraska and Michigan are among these states. Most states, however, will allow a plaintiff (either an individual or a company) to be represented by an attorney. The problem with this is that attorney fees usually take a big bite out of any monies awarded in the case of a favorable ruling. Studies show that individuals or companies representing themselves in small claims courts typically do just as well as those with legal counsel.

Disputes involving money are usually deemed appropriate for pursuit in small claims court if they would be acceptable in any other type of court. For example, disputes involving breach of contract or non-payment of bills can be pursued in small claims court. The dollar limits vary from state to state, but are typically in the $2,000 to $7,500 range. The dollar limits also may vary for suits filed by individuals versus companies. For example, in California, an individual can sue for up to $10,000, while a company can only sue for up to $5,000.

If the party or company being sued resides or is located in the same state as the plaintiff, usually, the case must be filed in the county closest to that person’s or company’s residence or location. If the party being sued is not located in your state, then most likely, you will be required to file suit in the state where the defendant resides or works. This can sometimes make the pursuit of the filing unattractive due to the distance involved and the time and money required.
Statutes of limitations also may come into play if the filing involves a money dispute that happened a while ago. Check the legal code in your state entitled, “statue of limitation.” In California, the statute of limitations for a written contract is four years.

Before you make your decision as to whether or not to pursue your debt collection in small claims court, check with the requirements for filing in your state. Remember, that even if you take your collection case to small claims court and win, you still have to locate the debtor and pursue collection of the debt once more. The costs relating to the ultimate collection may not be worth the time and money spent to get the favorable ruling.

When making the decision to file suit in small claims court, it might be worthwhile to check into the cost of turning over these claims to collection agencies. Collection agencies typically work on a contingency basis. While an agency may not want to put much effort into a claim worth only a small amount of money, sometimes debtors are instantly motivated to pay after hearing from a collection agency just one time. Professional debt collectors have the experience and training they need to get debtors motivated to pay. It might be much easier and more profitable to turn claims over to the professionals rather than spending a lot of time and energy going to small claims court.

Click here to continue onto the second article in this six part series Collection Agencies And Other 3rd Party Options 2 of 6.

The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.