Collecting debts can be very frustrating. Success often involves doing careful research into state debt-collection laws, a willingness to work with your debtor and, if necessary, going to court. Be careful, however: even winning a lawsuit doesn't entitle you to harass a debtor. Keeping communications professional and respectful protects your interests and increases your chances of collection.
Understand the Statute of Limitations
Each state sets a statute of limitations on debt collection: if you don't file a lawsuit within that period of time, you won't be able to collect your money through the courts. Knowing your state's statute of limitations rules helps you develop a collection plan. If you'd prefer not to go to court and the debt is relatively new, trying to collect outside the legal system may be a option. If the statute of limitations period is running out, however, you may have to make a quick decision about filing a lawsuit.
Contact Your Debtor
Before utilizing the court system, try contacting the debtor one more time. If you've only been sending invoices, a phone call or a letter may help you establish communications and negotiate payment. If the debtor is a friend or family member to whom you've loaned money, he may be embarrassed about the situation and trying to avoid you. Offering to set up a payment plan, perhaps through automatic payments made the debtor's checking account or PayPal, can reduce tensions and help you get your money back. Remind the debtor that if you have to go to court, the debtor's credit score will take a significant hit. Another option is to ask a lawyer to send a letter to your debtor: This lets the debtor know that you are serious and expect repayment; of course, you will have to pay the attorney for this service.
Going to Court
Going to court and winning a judgment gives you access to a wider array of debt-collection strategies, such as being able to seize property, garnish wages, or levy bank accounts. However, lawsuits cost money, including court fees, lawyer fees and taking time off work. Consider these expenses before making the decision to take your case before a judge. One less expensive option is small claims court: These courts were developed to allow non-lawyers to sue for small debts. However, each state has its own limits on the damages one can claim in the small claims system: if the debt is over your state's limit, you'll have to take your case to regular court. Many lawyers offer free or low-cost initial consultations and can give you advice as to whether your case has merit and your likelihood of collecting your money.
Collecting a Judgment
You are responsible for collecting your court judgment. Some legal advisers recommend a careful approach after a lawsuit. An intimidated or angry debtor may decide to file for bankruptcy, potentially preventing you from ever getting your money. Offering a repayment plan or a settlement may be your best course of action. If the debtor refuses to work with you, ask the judge to order the debtor to disclose information about her financial status, including bank accounts, real estate holdings and wages. You can then ask the court to help you seize, garnish, or levy these assets until you collect what you're owed.
- Nolo: How Creditors Enforce Judgments
- Nolo: What Types of Cases Can Be Resolved in Small Claims Court?
- Nolo: I Won my Case, Now Where's my Money?
- Nolo: Tips on Collecting Your Judgment
- Findlaw: Legal How-To: Collecting Money Owed to You
- Nolo: Time-Barred Debts: When Collectors Cannot Sue You for Unpaid Debts
- Nolo: Chart: Statutes of Limitations in All 50 States