Depending on your needs, you may be best served by hiring a debt collection attorney to recover outstanding debts.
- A debt collection attorney assists you in taking necessary legal action to recover client debts.
- You should hire a debt collection attorney to recover large debts, pursue debts from large companies, or receive other legal assistance.
- When hiring a debt collection attorney, consider factors such as their fees, specialties and court representation.
- This article is for small business owners considering hiring a debt collection attorney to recover debts from nonpaying clients.
In business, there's always the looming worry of doing great work for a client who never pays. Though frustrating, this scenario doesn't leave you entirely without recourse – you can always take legal action to try to recover the money you are owed. In this case, you'll need a debt collection attorney on your side. Before proceeding down this road, it is important to understand more about this type of attorney, what you should know when hiring one, and how they differ from collection agencies.
What is a debt collection attorney?
A debt collection attorney is a lawyer who can work with you to develop legal strategies for recovering debts from nonpaying clients. Their work often involves completing and filing paperwork for you, and if your case goes to trial, they typically represent you in court.
On the flip side, some debt collection attorneys are more inclined to represent debtors than creditors. In these instances, the attorneys work to protect those who are being sued.
Key takeaway: A debt collection attorney is a lawyer who assists you in developing and executing legal strategies for recovering debts owed to you.
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When would you need to hire a debt collection attorney?
You might need to hire a debt collection attorney in the following situations:
You expect your case to go to court. If you've been chasing your debt for so long that you expect to require a legal judgment before you get your money back, you should hire a debt collection attorney. Although you can theoretically represent yourself in court, a professional with expertise in the relevant laws is far more likely to get a ruling in your favor.
You need to send demand letters. Let's say you expect your case to go to court but would highly prefer not to actually sue. That's where demand letters come in. With these legal documents, you'll share your side of the story and state to the client that they won't face legal action if they pay a certain amount. Sometimes, when nonpaying clients receive these documents, the idea of legal action compels them to pay before you sue. A debt collection attorney can help you write effective, legally sound demand letters.
Your client owes you at least $5,000. Some debt collection experts recommend hiring a debt collection attorney anytime a nonpaying client owes you $5,000 or more. In general, as long as a debt is large enough that the cost of legal representation seems worth it to proceed to court, hiring an attorney is a good move.
Your client is a large company. Larger businesses usually have more resources to fight against attempts to compel them to pay their debts. Debt collection attorneys are often well versed in how large companies may use these resources, so they can be helpful as you seek corporate debts.
- You need any other sort of legal advice or assistance with debt collection. Discussions of how to collect debts often involve collection agencies. However, these agencies cannot give legal advice or file lawsuits; only a lawyer can, and a debt collection attorney will know all the relevant laws and aptly advise you.
Key takeaway: You should hire a debt collection attorney if you're pursuing large debts, seeking repayment from large companies, or in need of other legal assistance with the process.
What to consider when hiring a debt collection attorney
When you're looking for the right debt collection attorney, you should learn and consider the following about each candidate:
How much does the debt collection attorney charge? The cost of filing a court case to recover your debts often reaches the high hundreds of dollars. If you're successful, you'll likely have to pay one-third of your recovered debt and perhaps additional fees to your debt collection attorney. As you search for attorneys, ask each candidate about their fee structure, and ask yourself whether you can afford the costs of going to court.
Are the attorney's skills appropriate for your case? Some debt collection lawyers are skilled at winning cases against large companies but have no clue how to handle small business debts. Ask any attorney candidates to share their track records so that you can see where they excel and where they lack experience. Then, if you do go to court, choose the lawyer with the best skill set for your needs.
Do they specialize in your debt type? A lawyer's skill set isn't the only indicator of how well they fit your needs. Put another way, an attorney well versed in recovering debts from large companies could fail to recover debts tied to small business equipment rentals. Discuss your debt type with your potential attorney to determine whether their services will work for you.
How do they handle communication? Lawyers can be quite busy, but their hectic schedules shouldn't hamper their communication with you. Surely, you'll get a feel for your potential debt collection attorney's communication process as you search for lawyers, but this initial impression only tells you so much. You should also explicitly ask how often your lawyer will update you throughout the process and decide whether their answer works for you.
What do their references say about them? A trustworthy debt collection attorney should have a list of references – ideally past clients – readily available. They should also have no issue connecting you with these references. Use what you learn from these references to gauge whether the attorney is right for you.
Do they work independently or within a firm? An independent lawyer may work outside a firm because their strategies work best when they get to run the show (and if you're a freelancer collecting debt, you can probably relate). However, independent lawyers may lack resources – including time – that firms can more easily access.
- Will they actually represent you in court? A debt collection attorney can represent you in court, but not every attorney will. Some attorneys prefer to work as consultants who never set foot in courthouses. If you don't know this preference ahead of time, you could be left flat-footed when it comes time to sue. If you need a lawyer who can go to court, make sure that's what you're actually getting.
Key takeaway: When hiring a debt collection attorney, consider factors such as their fees, their specialties, and whether they'll represent you in court.
Hiring a debt collection attorney vs. hiring a collection agency
As mentioned earlier, if you're seeking legal advice, you'll need to hire a debt collection attorney instead of hiring a collection agency. You should also consider these factors when choosing between an attorney and an agency:
Costs. Some collection agencies will charge 25% of your debt to work for you; some may even charge 50%. A 25% fee is probably less than what a lawyer will cost, whereas 50% is more. However, in some cases, a court judgment in your favor will require your debtor to cover your attorney fees, so your fees might not ultimately matter.
Likelihood of client payment. If it's unclear how likely the client is to pay, you can try starting with an agency. If it's clear that your client has no intention of paying, going straight to a lawyer can save you time and possibly money.
Urgency. Collection agencies can't directly compel debtors to pay or file suits that inch you closer to this goal. Debt collection attorneys, on the other hand, can file demand letters on legal letterhead, which can compel debtor action even before a formal lawsuit. Additionally, only attorneys can represent you in court and bring about a binding ruling from a judge.
- How much you actually want to go to court. If you're not invested in taking your case to court, then hiring a lawyer may not be worth it. In this case, choose a collection agency, or just leave the debt be. Some long-overdue debts, believe it or not, are better left unrecovered. Acquiring new clients can be a faster, more reliable, and certainly less frustrating way to close the cash flow gap that your debtor has left.
Key takeaway: When choosing whether to hire a debt collection agency or attorney, weigh their costs and abilities against how likely the client is to pay, how urgent the debt is, and how much you want to go to court.