If you’re reading this, you likely have a debtor (someone who owes you money). Perhaps you are the primary creditor or business owner, a third-party collector, or part of a debt collection law firm. You may eventually reach a compromise or agreement (more on those options below), but initially, you can expect some resistance from the debtor.
You ought to know the schematic of a typical debt collection attempt and its many potential dead-ends and forays so that you might prepare yourself appropriately and work toward a satisfactory conclusion.
What To Expect When You Start A Debt Collection Case:
- You’ve Been Served
Collecting money from someone who refuses to pay is often like drawing blood from a stone (plus legal fees). Laws require official notice (or “serving”) to be given to the defendant of the complaint. You must serve notice, no matter how difficult.
- Complaining is the Beginning
All creditor/debtor disputes and lawsuits begin with an official complaint, registered in a civil court (e.g., municipal, superior, county, justice, or similar courts). You will name the debtor as the defendant, as well as anyone else who has co-signed the repayment plan. You will also state why you are suing the debtor and present a detailed list of what is owed, including any interest, reimbursements, and filing or court costs.
Typical complaints require a response within 30 days of receipt. The debtor may respond (called the “answer”), or the debtor may hide from the complaint.
- Hide-and-Seek Remunerations
The best ways to serve are to hire a process server, have a sheriff deliver the complaint, or send it yourself via certified mail — many law firms will also provide this service for you (check state laws to determine which is appropriate). However, the defendant may ignore these attempts.
For instance, he or she might refuse to answer the door or move without providing a forwarding address. If you can prove that the defendant willfully ignored attempts to serve notice, you may be able to reclaim fees associated with delivery attempts.
A judge will typically render a default judgment to the complainant for any legally served complaint that does not receive a response within the time allowed (usually 30 days), assuming the complaint is not egregious.
- The Trial
Assuming the defendant responds, notices will be sent by the court for a settlement conference or a trial date. You may be able to convince a judge to sign off on a summary judgment if you feel none of the facts of the case are in dispute, in which case you would win without the need for a trial; however, should the defendant file opposition papers, the case will move to settlement or trial.
Some states require settlement conferences to take place before a trial. A settlement may or may not be achieved, but you could receive an honest assessment of the case from legal representatives regarding your potential to win the trial. If a summary judgment is not awarded, and if the settlement is fruitless, the trial will begin. You should prepare.
- Discovery Channels
Information is the best tool in any trial, and the discovery process allows each party to gather formal documents and information from the other. You may not need much or any discovery, but in the event you do, you have several legal tools at your (or your legal team’s) disposal. Keep in mind that the defendant has the same tools you do, especially if he or she has brought a counterclaim against you.
- Questions Under Oath
You may request that the defendant perform a deposition, in which they respond orally to questions under oath with a court reporter present. Interrogatories are the written forms of depositions, in which defendants must respond to a series of questions, in writing and under oath. Most courts allow limited depositions or interrogatories per party, and subsequent attempts may be blocked by protective orders.
- Polite Requests
Parties have certain formal requests they may ask of the other, including the production of documents such as receipts, copies, emails, and so on. They may also request the inspection of tangible (non-written) objects, or they may request one party’s formal admission or denial of specific allegations.
Although unlikely, parties may request physical examination of the other if health is an issue in the legal dispute.
- Formal Orders
The most serious action a party can take in discovery is the subpoena (Latin for “under penalty”), which can compel the defendant to appear at a deposition or trial. A subpoena duces tecum is another form of subpoena that requires the defendant bring specific documents to a deposition, trial or hearing. Failure to comply with a subpoena is a criminal offense.
- The Gavel Comes Down
The truth is that a trial is the least likely outcome of your debt collection lawsuit. The vast majority of cases are resolved in settlement conferences or via summary judgments. If the case does move to trial, a judge will make all legal decisions.
Should the court rule in your favor, you have options available to reclaim the debt owed, such as receiving a lien on all non-exempt real estate, garnishment of wages, and the sale of the debtor’s property. Of course, legal teams may continue to work after a judgment to reach repayment plans or other methods to which both parties agree.
- Common Defenses
Be aware that defendants may try several prominent methods in an attempt to dismiss a lawsuit. You should thoroughly research or hire counsel to ensure that you are acting in accordance with the law and are permitted to seek repayment from the debtor.
- Time Ran Out
Almost all debts have a statute of limitations placed upon them in which a collector may sue the debtor for unpaid debt. Consult your lawyer or do some research to find the statutes of your state. Certain kinds of debt (oral versus written; open-ended versus closed-ended) may have shorter or longer statutes of limitation.
- Who Owns What?
Documentation of the debt is critical. You must be able to prove that you legally own the debt for which you are seeking repayment. If you are the creditor, this will not be an issue; if you are a debt collector, the debtor is permitted to send you a dunning letter that will halt your collection attempts until you verify the debt, such as with an account statement or another formal document. The dunning letter works in perpetuity until you fulfill its demands.
Be sure to attach a copy of the account, agreement, or written contract in your initial complaint. Failure to do so might result in a dismissed lawsuit and wasted time and resources.
- Simplicity is the Best Policy
Finally, the best strategies — for both parties — is to play by the rules, follow the law, and honor existing contracts and agreements. Judgments can take months or even years to resolve, and attorneys and courts will need to be paid regardless of the outcome.
Have you encountered a similar or different debt collection process? Let us know in the comments section.