Debt Collection Litigation
The video and transcript below explain the debt collection litigation process. Our collection agency resolves over 97% of our successful cases without going to court. To learn more, see How We Work. When necessary, we do a full second collection effort under the name of our in house law firm at our same low contingency rates.
If litigation is the only option, we have a nationwide network of attorneys who will work for our clients on a contingency basis. Whenever litigation is considered, we carefully evaluate whether it makes financial sense as shown in our infographic Should You Sue Your Customer. In most cases, winning the lawsuit is easy. But, as explained in our video on Judgment Collection, actually collecting your money is the real goal. This process can take time and there are no guarantees of success.
Transcript for the video:
Thank you for your interest in our collection agency services. We have been providing superior debt collection services since 1991. In this presentation we provide an overview on commercial debt collection litigation.
Over 85% of our debt collections is under the name of our collection agency, and another 11% under the name of our in house law firm. Unfortunately, there are some situations where we cannot collect without going to court.
The filing of a suit and the cost of litigation is not covered under our standard contingency-based services. We will not proceed to suit without the client’s written authorization and clients do not have any obligation to sue if we are not successful with our non-judicial collection efforts.
Typically, by law, the lawsuit will need to be filed wherever your customer is located. The only exception is if you have something in writing signed by your customer saying that the venue will be elsewhere. Some clients have credit applications that state that any litigation will be done where our client is located.
Our collections agency has developed a network of debt collection attorneys all over the country who will work for us primarily on a contingency basis. The contingency rate will be higher than what we charge for our standard collection process and typically is about 33% which includes a small percentage for our firm.
In addition to the contingency rate, the attorneys also require that clients pay, in advance, all out-of-pocket expenses associated with a lawsuit. This includes the filing fees for the lawsuit, the cost to serve the debtor, and costs during the judgment collection process such as debtor exam hearings, bank levies, wage garnishments, etc. In some situations, the debt collection attorneys also want a small retainer. Since each claim is different, we will get you a specific quote if we think litigation is a viable alternative and you want to explore this option.
The amount of the out-of-pocket expense deposit is based on local filing fees, hearing costs, anticipated process server costs, etc. This may range from only $200 in some locales to as high as $750 or more in some situations. Judges typically add the amount of out-of-pocket court costs to the principal and interest that is included in a judgment. Thus, if the judgment is collected in full the client will get their costs recovered. Any unused out-of-pocket expense deposit will be returned to the client.
We find that the initial deposit is sufficient to cover litigation costs in 95% of the cases. In a small percentage of the cases, additional funds are required. This typically is associated with the debtor making it very difficult be served, filing an answer to the lawsuit, constantly changing hearing dates, not appearing for hearings, etc. Generally our attorneys will not proceed to incur additional costs unless a client deposit is on hand.
If the attorney charges a retainer to file the suit, it is non-refundable. A number of factors contribute to whether or not a retainer will be required. In our experience they are required in about half of all cases. They can range from as little as $250 to as much as 5% of the claim amount. We get you a specific quote up front so you know exactly what your costs are before you make a decision on litigation. We do our best to minimize the cost for our clients while making sure you have excellent attorney representation.
Judges typically add interest to the principal and allow interest to accrue on the judgment amount until it is paid in full. The rate of interest will be based on any contract executed by the customer such as a credit application or services agreement. If the customer did not sign a contract, then the rate of interest is determined by state law.
Judges may also add attorney fees to the principal amount. Typically an attorney fees provision must be in the signed contract between the debtor and client for this to occur. On claims under $25,000, the amount awarded is typically between $400 and $700 rather than being based on the contingency fee rate. The larger the claim the more a judge is likely to award in attorney fees but there is no requirement that the entire contingency fee be awarded.
While interest, court costs, and attorney fees may be added to the amount of the judgment, this does not guaranty that they will be collected. There is no guarantee that litigation will result in a judgment, although we have a 99% success rate. Unfortunately, getting a judgment does not guarantee that we will collect your money. In most cases getting the judgment is only the first step to getting your money and there may be additional out of pocket costs. Please see the presentation on the Judgment Collection Process for more information.
There are a couple of other items to be aware of. If the debtor files a counter-suit, the cost to defend the client in a counter-suit is not included in the contingency rates. This is because the attorney has no way to make money defending the lawsuit. Attorneys require an hourly fee, typically between $150 and $400 per hour, to defend a counter-suit and will require a retainer in advance. If the debtor defends the lawsuit and it goes to trial, you may need to have a witness appear in court or in a deposition.
It takes a minimum of 4 months to get and record a judgment, and that happens only if there are no complications and everything occurs promptly. Once the attorney receives the file and cost advance, it will take them 2 to 4 weeks to prepare and file the lawsuit. Then it has to be served on the debtor, which usually takes another 2 to 4 weeks. The debtor then has 30 to 45 days to respond.
If they do not respond, the attorney can file for a default judgment, which can take 2 to 4 weeks. The court will issue a judgment in as little as 2 weeks, but sometimes it takes 3 months. Once it is issued, the attorney needs to record the abstract and file liens, which can take a week to 2 months.
So, if it goes extremely smoothly, it is done in 4 months, and if there are issues and delays, it can take 9 months. If the debtor fights the lawsuit hard, which happens in less than 5% of our cases, it can take 18 months before you have a judgment. Given the cost and time required to get a judgment and then collect, we strive very hard to avoid litigation. But, if it is the only way to collect your money and we believe there is a high probability of actually collecting, then it is worth doing as it typically has an excellent return on investment and it prevents people from taking advantage of your business. Please see the Judgment Collection video on how we collect once we have the judgment.