PART 3 of the series What to Expect when Retaining a Collection Attorney to Assist in Recovery of Delinquent Accounts.
Today’s guest blog was contributed by Lisa H. Haster, Esq., Of Counsel/Marketing Director for Gurstel Law Firm P.A. Over a series of 4 blogs, she is walking our readers through the processes that can be expected before, during and after retaining a collections attorney to assist in recovery of delinquent accounts. The series includes:
- When to engage an attorney and why?
- What exactly is a judgment and how does it benefit me?
- The process a file undergoes when it is placed with a collections attorney
- Recoveries that are available to a business once it obtains a judgment.
In Part 2 of this series we explored what a judgment is and how it benefits you. This week we’ll lay out the process a file undergoes when it is first placed with a collection attorney.
Before a law firm can accept the placement of a file for collections, it has an ethical obligation to perform a conflicts check. This ensures that the firm and/or its lawyers don’t have any conflicts of interest with either the client or the debtor. If there are no conflicts, the client may place the file with the firm.
“Placement” of a file may be handled differently depending on the volume of files being placed. If a client only has one file, it can be placed by creating a PDF containing all relevant documents and emailing it, or faxing the file, or even sending it by snail mail. Most reputable firms will have a dedicated New Claims email address that clients can use to upload and place new files.
Once placed, the attorney will confirm that the claim is within the state’s statute of limitations. If it isn’t within the statute of limitations, the firm cannot proceed with collections.
Assuming the claim is within statute, the file will be “scrubbed.” Scrubbing a file means that the firm will conduct searches to determine if the file is worthy of pursuing. Depending on whether a file is a commercial or a retail matter, the scrub could consist of a bankruptcy search, judgment search, UCC lien search, asset search, skip tracing for a current address, litigious debtor search, active military duty status or even the death of the debtor.
Within 48 hours of placement, the firm should send the debtor an initial demand letter seeking payment of the account. Phone calls will be made to the debtor by a dedicated staff member who will seek payment or attempt to facilitate settlement discussions.
If unsuccessful in obtaining a settlement, the law firm will prepare a letter to the client summarizing its work on the file to date, list all assets that have been located, provide updates on the debtor and discuss costs and documents that are necessary to proceed with a lawsuit. Reputable firms will often provide a recommendation as to whether to proceed with a lawsuit or not. However, that decision is ultimately left to the client.
Although state laws vary, typically if the client chooses to proceed with a lawsuit, a complaint is drafted and the debtor is served with the complaint. In some states, a matter can be filed in small claims court (if the balance on the account is below the limit). Small claims actions are usually less costly, and there are fewer procedures than when filing a claim in District Court. A small claims hearing on the matter will take place before a judge or referee and a decision will be made as to whether or not the client is entitled to judgment against the debtor.
Once debtors are served in a District Court action, he/she/it may provide an Answer to the complaint stating whether they agree with the allegations contained in the complaint, deny the allegations or will serve a counterclaim. If an Answer is served in response to the complaint, the file can take several different courses of action including serving and answering discovery and bringing motions before the court. Clients will be updated throughout the process.
If the debtor fails to respond to the complaint, the matter may proceed by default. This means that there will not be a trial on the matter, and it can speed up the client’s ability to obtain the judgment without the delay of litigation.
If ever a client requests a status update on the file, an update should be provided within 48 hours.
The ultimate goal of the file is to obtain a court judgment in the client’s favor and against the debtor so that the client will be entitled to remedies that provide for recovery of the debt. Once judgment is obtained, the firm will inform the client and proceed with post-judgment remedies allowed by law.
You’re probably wondering what it costs to hire a collections attorney to do all of this for you. Many collection matters can be handled on a contingency basis. This means that the client doesn’t pay the firm for its legal services unless the firm recovers money on the file.
There are, however, costs unrelated to attorney’s fees. Those costs include court filing fees and process service fees (to get the debtor served). Court filing fees vary from state to state and even county to county. By way of example, in Minnesota small claims filing fees can be as low as $72.00 per file and District Court filing fees can be as high as $332.00. The high cost of filing at the District Court level makes small claims court very attractive to clients. In Minnesota, clients may file most claims up to $15,000.00 in small claims court. Some clients even choose to reduce the amount of the actual amount due to $15,000.00 in order to take advantage of the cost, ease and quick turnaround of a decision in small claims court.
Now you have an understanding of the process a file undergoes when it is placed with a collections attorney. Next week we’ll explore the various post-judgement remedies available to aid in recovery of the account.
For additional information on collecting delinquent accounts, grab a copy of our free e-Report: What Most Businesses Don’t Know About the Recourse that’s Available to Them When a Customer Refuses to Pay. https://lisah.clickfunnels.com/gurstel-law-firm-p-agnv6iis5 and watch next week for Part 4 of our 4- part series, as we discuss the post-judgment remedies available once a judgment is obtained.
by Lisa A. Haster, Esq.
- Principal-Metropolitan Law Group P.A.
- Of Counsel/Marketing Director-Gurstel Law Firm P.C.
- (612) 524-9414