Part 7: Lawsuit Time – Supporting Debt Litigation

Once the contacts have been made, defenses (or excuses) examined, and collectability assessed, if the amount involved warrants, the lawyer will offer suit as an option to turn up the heat. The lawyer may recommend the suit option or it might just be offered as another tactic. That difference might make a difference in the lawyer’s willingness to proceed on a wholly contingent fee basis. Remember, the lawyer is also assessing whether she is going to get paid for her services. If the case looks like a loser and doesn’t carry a good prediction of success, the lawyer may not want to take all the risk. When that happens, the lawyer may want to discuss a partial fee advance against the final fee. Usually those advances are in the hundreds of dollars (rather than the thousands), but it depends on a number of things, including the lawyer’s relationship with the agency that placed the claim.

One serious consideration for the client is whether to authorize suit in a disputed matter if an eventual trial will require the attendance of a witness from the creditor at the trial. Many times (most times) a witness isn’t necessary. However, with certain defenses and certain courts, a witness will be required in person in the local courthouse. Whether a witness will be provided is a piece of information that should be discussed with the chosen lawyer when suit is discussed. If the creditor will not send a witness to California from New York, that is a fact that the agency and the lawyer should know when deciding whether to take on a lawsuit on a contingent fee. After all, if the claim would be collectible after judgment, but the creditor holds the key to recovery (by sending a witness and will not), the lawyer and agency need to evaluate whether to take the risk the debtor will force the case to trial, in which case, there may be no recovery because the client won’t provide a witness.

If the lawyer recommends suit, the lawyer should be more willing to roll the dice and become a “partner” in the debt litigation, at least in terms of contingent fee. In almost every case, the client should expect to advance an amount for the actual court filing and service fees. These vary from state to state and county to county within states. It is not unusual for the court costs to be more than $250 for a $10,000 suit.

The lawyer will also request copies of all the contracts, invoices, delivery receipts and correspondence, if they haven’t already been provided.

Once all of the documents, funds and authorizations are received, the papers are filed and sent out for service. Some states allow process servers or certified mail service. Others require service by the Sheriff or Marshal. In any event, that takes some time and may have some difficulty. Address changes, “Mom & Pop” businesses where the operators are out working during the day and no one is present to receive service, may delay service.

After service is made there is another delay to allow the debtor to enter a defense. Often that period is 20-30 days. If no defense is entered after the appropriate time, many courts will permit entry of judgment by default (without a trial). Once any appeal time expires, that judgment is a judicial determination that the money is owed. Virtually every jurisdiction then has some process for the creditor (usually through a court officer) to seize assets of the defendant to pay the judgment. How that works (what it costs and how long it takes) varies state by state.

If a defense is entered, there are many ways the case can go. The lawyer should work with the creditor to review the defense and determine whether there is any truth or validity, whether some adjustment to the claim amount should be made and whether an overture at settlement would be appropriate. The response to a defense depends in great part on the pre-suit discussions. If the pre-suit discussion was only about the debtor’s ability to pay, then a list of disputes is raised when the suit is filed; creditors and lawyers are less likely to believe them. On the other hand, a debtor’s consistent reference to a dispute takes on additional significance when the debtor is willing to pay a lawyer to assert it rather than spending that money to settle the claim.

The tactics used in disputed litigation can include going right to trial, engaging in formal Discovery (perhaps to support a Motion for Summary Judgment – that there are no facts in dispute – or a Motion for Judgment on the Pleadings – that the pleadings themselves call for a decision for the creditor), mediation, arbitration or other settlement discussions. Whether one or another is appropriate depends on many circumstances and should be discussed among the team of the creditor, the agency and the lawyer.