Bad debts are a part of life. If you operate any kind of business, you know that a certain percentage of your customers will be slow payers. Some of them will not pay at all. You might find yourself entertaining lawsuits against some who owe you a substantial amount of money. But before going down that road, carefully consider all the implications.
A civil lawsuit could legally establish the existence of a debt owed by one of your customers. But that does not necessarily mean you will get paid. Winning a civil lawsuit offers no guarantees of payment. That being the case, here are 5 questions to ask before filing a debt collection lawsuit:
1. Can I prove the material facts?
Winning the lawsuit will require proving the material facts in the case. The number one fact is the existence of the debt. Do you have documentation that proves the customer owes you money? If so, you are in a good position.
There may be other facts in the case worth presenting. For example, maybe the original debt was subject to installment payments that your customer failed to make on schedule. There might be additional fees you can charge based on the language of your original agreement. These are all things that need to be proved in court.
2. Do I want more than just payment on the original debt?
Next, ask yourself what you hope to accomplish with a civil lawsuit. If your only goal is to collect on the original debt, you should have very little problem getting the court to enter a judgment in your favor. That is provided you have sufficient evidence, of course. But if you are looking for more – perhaps requiring the defendant to take certain actions, for example – your case becomes more complicated.
3. How will I enforce it if I win?
So many companies filing debt collection lawsuits have no idea that winning will make them responsible for collection. Unlike criminal court, where a judge can order a convicted criminal immediately held and imprisoned, courts in civil cases generally don’t get involved in collection unless additional motions are filed.
Should you win, you will have some options as far as collecting. You could try to collect on your own or leave collection to your attorney. You could also bring in a collection agency like Judgment Collectors, an agency that does nothing but handle unpaid judgments.
4. How long am I willing to wait to collect?
Ask yourself how long you are willing to wait to get paid. Here is the thing: you had to go to court because the debtor has already failed to pay his bill. The chances of him handing you a check while the two of you walk out of the courtroom are not very high. In all likelihood, it’s going to take some time and effort to get the money you are owed. Collecting is probably not going to be easy.
5. Am I prepared to never collect?
Judgment Collectors says the vast majority of judgments entered in U.S. courts are never fully collected. There are a number of reasons why this is so. The bottom line is that you may never see a dime. Do you still want to put the time, money, and effort into a lawsuit knowing this?
Debt collection lawsuits are very worthwhile in many cases. But in other cases, they are not. Creditors need to think long and hard about the implications of filing a suit before doing so. Otherwise, the eventual results of a lawsuit may not meet the creditor’s expectations.