When a client contacts us about an unpaid account or a debt that needs to be collected, we’ll 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’re broke? If it seems like something that we should move forward on, we’ll ask the client to provide us with documentation (e.g., purchase orders, contracts, invoices, any check copies, credit applications that might have bank account information, tax ID numbers, etc.).
Once we have that information from the client, we review it to determine whether it’s a secured or unsecured debt, which will guide how we proceed. We also look to see how old the debt is. In California, written agreements have a four-year statute of limitations, meaning you can’t wait more than four years from the date the debt became due to sue on an invoice or a contract that hasn’t been paid. We’ve had clients approach us with debts that are five years old, and we have to tell them all we can really do is write a letter. We can’t sue because the debt is too old. These things do expire, so that’s a reason why clients shouldn’t wait too long.
If the documentation is a contract, we’ll look to see if there’s an arbitration clause, a mediation clause, or both. Some of our clients would rather go to arbitration, which is private, than have to file a lawsuit in court. 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’re filing a lawsuit in the right place.
Then, we identify all of the responsible parties. Hopefully there is a personal guarantee, meaning one of the owners is on the hook to pay the balance, not just the business. That makes it more collectible, especially if you’re dealing with a company that is going out of business or has already gone out of business. When we have an individual who’s also on the hook, we can go after their personal assets.
Collection Without Filing A Suit
When Should This Be An Option? What Is That Process?
We almost always try to collect without filing a 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 percent 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 clients regarding content, these letters usually say something to the effect of: “This is the amount you owe. Our client has tried to resolve the debt, but you haven’t paid. Pay up within ten days, or we’ll likely be instructed to file a lawsuit.”
Sometimes the debtor answers, and sometimes they don’t. If the first letter is ignored, we might decide to write a final demand letter, which gives them less time to respond before we go forward with a lawsuit. We attach a copy of the original demand letter and any other supporting documentation we’re provided. This is the “pay now or we sue” letter.
If possible, you want to have multiple touches because some debtors will just ignore you. 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 when that happens, we try to work things out.
At any point in this process, we hope to get a settlement before a suit is required. When we can work out a settlement—whether it involves a payment plan, a discount, or whatever—we’ll put together a settlement agreement for everyone to sign that has all the terms that favor our client. This makes it more enforceable in case there’s a default by the debtor down the road.
For more information on Debt Collection Law in California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (714) 594-6322 today.
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