What Are Some Of The Preliminary Steps That You As The Attorney Will Take On Behalf Of Your Client In The Debt Collection Process?
When a client contacts us about an unpaid account or a debt that needs to be collected, we will first talk to them on the phone. We have some clients with multiple accounts for whom we’ve developed pre-arranged procedures, so we don’t need to talk to them on the phone every time. We like to hear what the situation is, whether there are any disputes the other side is raising regarding why they haven’t paid. Are they ignoring you? Are they claiming they have no money? If the facts warrant that we pursue the matter, we’ll ask the client to provide us with documentation (e.g., purchase orders, contracts, invoices, check copies, credit applications, tax ID numbers, etc.).
Once we have this documentation, we will review it to determine whether it is a secured or unsecured debt, which will guide us on how we proceed. We also verify how old the debt is. In California, the breach of a written agreement or unpaid account must be pursued within four years, meaning you can’t wait more than four years from the date the debt became due or the last payment was received to file suit or the lawsuit can be thrown out of court because the statute of limitations has run. . We have unfortunately had clients approach us with debts that are more than four years old and have had to break the news that they cannot pursue the debt in court. Statutes of limitation are firm deadlines so clients should not wait too long to pursue an unpaid debt.
If the documentation includes a written contract, we will review it to determine if there is an arbitration clause, a mediation clause, or both. Some of our clients would rather go to arbitration, which is private, than file a lawsuit in court which becomes a public record. This step helps us determine where we’ll be if we have to take legal action; some contracts even tell us where we have to sue (for instance, it might be Northern California instead of Orange County, Los Angeles County, or Southern California). We obviously have to make sure we are filing the lawsuit in the right place.
Then, we will identify all of the responsible parties. Hopefully, there is a personal guaranty, meaning one of the owners/principals is responsible to pay the balance, not just the business. That usually makes the debt more collectible, especially if you are dealing with a company that is going out of or has already gone out of business. When we have an individual who is also responsible, we can pursue their personal assets which gives us significant leverage.
Collection Without Filing Suit: When Should This Be An Option? What Is That Process?
We almost always try to collect without filing suit. The exception would be when we have a client who comes to us and says, “I’ve been trying to collect this for two years. I don’t even want you to write a letter. I just want you to sue them.” Perhaps 95% of the time, we begin with a written demand letter to the debtor so that they know the client is serious and has retained an attorney. While we take direction from our client regarding content, these letters usually say something to the effect of: “This is the amount you owe. Our client has tried amicably to resolve the debt, but you have not paid. Demand is made that you pay within ten days, or we’ll likely be instructed to file a lawsuit.”
Sometimes the debtor responds to our letter, and sometimes they do not. If the first letter is ignored, we might send a final demand letter, which gives them less time to respond before we move forward with a lawsuit. We attach a copy of the original demand letter and any other supporting documentation we are previously provided. This final demand is the “pay now or we sue” letter.
If possible, you want to have multiple touches because some debtors will just ignore us. We’ll also pick up the phone and call the debtor if we’re not getting any kind of a response to our demands. Some debtors ignore our letters but will talk to us on the phone and work out a resolution of the debt.