When Is Litigation Warranted for Debt Collection?

Top View of Business Shoes on the floor with the text: LitigationCreditors and even collection agencies may wonder if sending unpaid debt to a debt collection law firm is warranted. Consumers who have past-due debts may wonder if the creditor they owe the money to will resort to turning it over to an attorney. If you’ve been through this decision-making process before, you might be aware of the most-often-used criteria for making the decision, but a quick review might give you some new things to consider.

No matter what you think you would like to do, some law firms consider the following before accepting a portfolio of bad debt:

  • Volume of accounts being submitted
  • Average size of the accounts &/or a minimum balance
  • Existing age of the accounts – the older an account is, the less likely it is to be collected
  • Statute of limitations – Bars creditors from suing for unpaid debts after a certain period of time
  • Whether your type of debt is something they specialize in
  • Documentation: the type of proof you have that you own the debt

TSI, a nationwide debt collection company, advises, “If your portfolio of bad debt consists mainly of extremely delinquent accounts with high balances, and you have already exhausted other means, using a collection attorney may be your best course of action.” If you are a consumer with a delinquent low-balance debt, your likelihood of hearing from an attorney is probably small.

Before you turn bad debt over to a law firm, you might want to do some research to help determine whether or not the debt will be paid, regardless of who tries to collect it. It does not make sense to sue a company in financial distress with unsatisfied judgments already recorded. If the information is available to you, consider:

  • Credit score &/or credit risk of the debtor(s)
  • Payment history trends and previous judgments
  • Available assets

Speed: Time needed to collect

If you think your bad debt is collectable, another consideration is how quickly a law firm/attorney vs. a collection agency may be able to recover the debt. Some law firms have an internal collection agency and attorneys with the power to send letters on legal stationery or take a debtor to court, and they can escalate files as needed. Once it has a judgment, the law firm can then take additional action, including garnishing the debtor’s wages, placing a lien on un-exempted property and collecting profits from rental or business income. Debtors may be less likely to ignore communications from lawyers for fear that they will be sued. Seeking the counsel of an attorney before turning accounts over to the firm can be advisable.

Fee &/or percentage charged

Many attorneys will not charge a flat fee for collection, but will agree to a percentage of whatever is recovered. If the accounts have been forwarded from a collection agency, a percentage or fee may be owed to them, as well. Be sure you understand what percentage of the debt will be yours once it is collected.

NL referrals, recommendations and validation

Selecting the right attorney for your needs can be made much easier by using the complimentary recommendation and validation services of The National List of Attorneys. To ensure there is no misunderstanding regarding your industry work standards, account placement volumes, technology needs, security requirements, and fee expectations, NL attorney referrals are carefully selected according to your stipulations. We have personal knowledge of both our law firm members and our clients, enabling us to provide each with quality recommendations.  Get a referral now, or call us at 800-227-1675.

Resources
www.tsico.com/collection-resources/collection-attorneys-vs-collection-agencies/
www.brownandjoseph.com/commercial-collection-agency/four-phase-business-debt-recovery-approach
www.hg.org/article.asp?id=18855



Categories: collection law settlements, Debt Collection, NL Insider, Outsourcing, subrogation

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