If we write one or two demand letters, make phone calls, and still can’t resolve the issue—whether the debtor is ignoring us, unwilling to pay, or otherwise being unreasonable—the next step is to discuss filing a lawsuit with our client. There are some considerations before we just launch into a lawsuit. Primarily, do we think the debt will be collectible? In some cases, it’s not worth the client’s time, money, or effort to pursue a debt. That happens in instances where the debtor company is going out of business, where there’s no guarantor, where they’ve already been served with other lawsuits, where there are tax liens, or where they’re insolvent or under water for whatever reason. Sometimes you just have to write off a bad debt.

Obviously, we hope that’s not the case, but it doesn’t do us any good to pursue uncollectible amounts, especially if we’re working on a contingency basis where we’re taking a percentage of the recovery. We’re in it together with the client, so it also wouldn’t do them any good either. If we suspect there are collectability issues, we can have an asset investigator run a report on the assets and liabilities of the business (including the existence of other lawsuits). We do that if we don’t get the information directly from the debtor.

Even if the debt is collectible, we have to look at whether our attorney’s fees would be recoverable. Let’s say we’re suing for $10,000; the client probably doesn’t want to spend $11,000 to collect $10,000. Now, if we’re working on a contingency, that’s not really an issue because the client’s not putting out any attorney’s fees. They’ll be paying costs, but those costs are generally less than $1,000. So, that’s another pre-lawsuit consideration. If we’re working on an hourly basis, can we get our attorney’s fees back? Does it make economic sense for the client to pursue this?

Lastly, we look for any issues with our documents. Is the debt too old? Is there a valid defense? Is it possible that we sue, only to have the debtor file a cross-complaint against our client? If there’s a chance the client might file a lawsuit and get sued right back, they might agree to just let it go. Maybe we’ll push for a settlement agreement instead, perhaps a mutual release agreement with the debtor, and just walk away if that’s the correct thing to do for the client. Overall, we work through our next steps on a case-by-case basis, depending on how much is at stake and how aggressive the client wants to be.

Enforcement Of Judgments

Let’s say we wrote a demand letter and made phone calls, but nothing happened. The client gave us the go-ahead to file a lawsuit, so we filed the lawsuit. The debtor responded or didn’t respond; either way, we won the case and got a judgment. If the debtor still hasn’t paid, what do we do next?

That’s where the California Enforcement of Judgments Law comes in. It provides different tools that we can use to try to collect on judgments against businesses or individuals or both. (Our judgments are typically against a business.) Depending on what we’re dealing with, we will use the appropriate tool. If we have a judgment against a personal guarantor who’s an individual, we can put on a lien on their home, if they own a home in Los Angeles County. When the individual goes to sell or refinance their home, we’ll get paid. I’ve gotten judgments paid many times that way. People are also more likely to call us and want to settle once they get a notice from the county that they have a lien.

We can also do a bank levy, which is generally the first thing we recommend, whether it’s a business or an individual. If we don’t have the banking information, we can have our investigator try to find it. The good thing about a bank levy is it’s not very expensive and the debtor doesn’t know it’s coming. We’ll have the sheriff serve Wells Fargo Bank or Bank of America—wherever they bank—which often leads to a panicked phone call from the debtor once they realize we took thousands of dollars from their account. The levy has already happened; there’s nothing they can do about it.

Bank levies are a great opening shot, and even if we don’t collect the full amount using that tool, it will oftentimes force a settlement. The debtor will either voluntarily repay at that point or work out a payment plan; they’re definitely incentivized to comply because they see what we can do to them if they don’t.

For more information on Pre-Lawsuit Considerations if Prior Collection Efforts Are Unsuccessful, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 594-6322 today.

Art Matthews

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