Using A Debt Collection Agency vs. Hiring a Lawyer - Pros, Cons and Likely Outcomes?

Question

I'm a small business owner owed $10,000 by a publicly listed company. I provided consulting services; they billled and collected for these services. The debt is still fresh at 60 days outstanding.
Reviewing their Annual/Qrtly & 10-K reports shows they have serious financial problems including owing the IRS, Medical Providers for their self insured employee Health plan and other creditors. The IRS has temporarily subordinated outstanding debt to this company's Senior Creditors thereby permitting them to remain a going concern(for now).
GIven this scenario and many letters, emails and phone calls to the CEO who makes it seem like I may get paid any day, just not today.
What are the pros/cons and possible/likely of hiring a lawyer to pursue this out of state debt versus hiring a collection agency? How do collection agencies price their services? Will they buy the receivables from me at a discount or rather negotiate a % of collected amount. Overall recommendations?

Answer 1

HOPEFULLY your letters to them were certified return receipt requested. If not send one out today that is requesting that you be paid within ten days, if not you "will refer them to a collections agency and information that you gather can and will be used against them for the purpose of collecting a debt". Plain and simple. There are some sample letters online do a search and you should find them.

My best answer is that in General, and I say in GENERAL, lawyers will charge hourly. There are some lawyers that specialize in cellections that may take a percentage. However if it needs to go to court they MAY charge you hourly. You would need to clarify that with them.

Collection agaencies generally take a percentage of the debt. The range could be anywhere from 10% up to 35%. I think the average is between 20-30%. Which is still better than getting nothing from your client.

Generally they do not go to court for the debt. Generally they will not buy the debt from you at a discounted rate. But there may be some exceptions to the above.

Your best bet is to find a LARGE, reputable collection agency that has inhouse legal people that could assist if legal matters should arise. Make sure you ask them that when contacting them.

By the way, depending on your state you may be able to take them to small claims court (the amount for small claims court could be around $3500.00 approx) or civil court but that would involve time on your part to do that and it may be too expensive to hire a lawyer do it for you. Or perhaps if you want to settle for a lot less you can still take them to small claims and request the lower amount of $3500.00 approx.

Hope that helps! Email me if you need more info... GL

Answer 2

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As you asked; "I'm a small business owner owed $10,000 by a publicly listed company. I provided consulting services; they billled and collected for these services. The debt is still fresh at 60 days outstanding. Reviewing their Annual/Qrtly & 10-K reports shows they have serious financial problems including owing the IRS, Medical Providers for their self insured employee Health plan and other creditors. The IRS has temporarily subordinated outstanding debt to this company's Senior Creditors thereby permitting them to remain a going concern(for now). GIven this scenario and many letters, emails and phone calls to the CEO who makes it seem like I may get paid any day, just not today. What are the pros/cons and possible/likely of hiring a lawyer to pursue this out of state debt versus hiring a collection agency? How do collection agencies price their services? Will they buy the receivables from me at a discount or rather negotiate a % of collected amount. Overall recommendations?" I hope it might help you.

All the Best :)

Answer 3

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RE:
Using A Debt Collection Agency vs. Hiring a Lawyer - Pros, Cons and Likely Outcomes?
I'm a small business owner owed $10,000 by a publicly listed company. I provided consulting services; they billled and collected for these services. The debt is still fresh at 60 days outstanding.
Reviewing their Annual/Qrtly & 10-K reports shows they have serious financial problems...

Answer 4

I agree with Echo about hiring an attorney, but I don't agree with her reasons.

First, you won't be able to sue in small claims court because most states have limits that do not excede $5000. It need to be heard in a higher court, which will mean more paperwork, legal fees, and expenses.

The advantage is you can collect all legal fees (well...reasonable legal fees).

It's always been my opinion that people who hire collection agencies either don't have a good case to begin with, or don't think they will be able to legally collect once they get a judgement. They prefer to harrass and threaten people to get their money.

Therefore, if you think you have a very good case, why give away 30% of the money to a collection agency? Find a good lawyer and sue them yourself. Collecting from a corporation is easier also.

Answer 5

It's just my opinion, but I would be speaking to a lawyer about this before a collection agency.

If you decide to sue, and you win, your lawyer will ask the court to award attorney fees and court costs, which the defendant will have to pay.

If you are owed $10,000, don't sue in small claims since you will only see a fraction of the amount if you win. Sue in a higher court.
(if you sue in "small claims", you might as well sell the debt for 50% rather than go through the hassle)

If you decide to go with a collection agency, you can go either way. You can assign the debt to them or sell it to them.

Just be extremely careful in the collection agency you chose as you may be held liable for any violations they commit. (many of the larger companies, that turn accts over to collectors, have a fund set aside just to pay countersuits.)

Don't commit any violations yourself either. That would leave the door open for them to countersue.

If you assign the debt you will realize more money if they should pay, but, it could take years for the collection agency to get them to pay. Plus, they may create a lot of violations along the way.

If you sell the debt, you will probably only see somewhere around 50% (more or less) of the debt. You can write off the remaining as a bad debt. You will have the money up front (or some of it anyway).

Also, if you go with a collection agency, be sure that they are licensed and bonded in that state if the state requires it.

Any way you go, you should be aware of "both" states statutes in collecting and suing.

What you end up doing is your decision.

You can assign the debt, let the collection agency have the headache. But I wouldn't expect the company to pay them any faster than they are paying you, so it may take years with it eventually being paid, ending up in court or written off totally. Plus, you would have the worry of the collection agency creating violations.

You can sell the debt and realize "maybe" 50% or 60% of the debt immediately and write off the remaining.

Or you can sue. As far as suing, you best bet would be to talk to a lawyer so you can see how solid your case is and how likely it is to get the company to pay the judgment.
If you win, they pay costs. If you lose, you pay costs.

Answer 6

i agree with Studly, you must get a lawyer involved the will me much more intune to see if this wil be a value added case. Now the only bad thing with this is that this company looks to be in a financial mess and banckrupcy may be looming. I hope everything works our for you!

Answer 7

Calling your family is illegal. Especially if they are disclosing any information about the debt. If you want the phone calls to stop you need to send them a letter requesting thy stop calling. I highly recommend you google debt collector laws. There are many helpful web sites.

Answer 8

To be honest, I don't believe that's correct

Answer 9

Thankyou everyone for answering.