Question of the Week: Is it worth it to turn an account receivable over to an attorney for collection?
If you run a business, odds are you have run into the issue of collecting an invoice from a customer. No matter how good you are at managing invoices, the account receivable issue tends to show up across all types of businesses. So what happens if you have invoiced, called, emailed and invoiced again? Some business owners write off the debt and move on with their lives knowing they will not do work for the non-paying customer again – an expensive lesson!
Our firm can offer individuals or businesses who are owed money another alternative to writing off a debt. We perform debt collection legal services for individuals and businesses all over Virginia. The way we make it cost-effective for our clients is we perform these legal services on a contingency basis. This means that whether it’s a $500.00 debt or a $100,000.00 debt, you will not be paying our firm up front and there will not be any hourly bills throughout the process. The trouble with hiring a lawyer hourly to collect a debt is you are having to come up with more money up front to pursue a debt that already has you in the hole! Also, there is never a guarantee of success, so there is a chance that you could be out the account receivable, AND have to pay your attorney as well! The contingency process works much better for collection. We are only paid if we are successful in collecting the debt, and we pay ourselves a percentage out of the collected funds.
If you have ever tried to collect an outstanding debt or an unpaid invoice, you have probably heard the term “judgment proof.” No, this doesn’t mean you will never get paid for the goods or services you’ve already provided. The term, “judgment proof” is actually a bit of a misnomer — it certainly doesn’t mean you can’t take a judgment against a particular debtor. It’s actually a better indicator of how difficult a debt will be to collect.
How does the collection process work?
As your lawyers, we first will open our file and review the documentation to make sure the debt is collectable and legitimate. Generally, a debt arises out of a written contract, or communication between the parties that amounts to an oral contract. We need that information, the invoices, and any other relevant communication between the parties.
To start the process, we will send a letter notifying the party that owes the debt that we have been hired and let them know they can contact us to try to resolve the matter outside of court. If this does not occur, we proceed with collection litigation. The lawsuit is generally filed in the General District Court if the amount owed is less than $25,000.00. If the debtor either does not show up for the hearing, admits the debt, or fails to successfully contest the debt at trial, the court will award a judgment against the debtor. If the debt is contested, a trial will be scheduled for presentation of evidence and testimony.
How Can I Pursue the Debt After I Obtain a Judgment?
Once a judgment has been obtained, the creditor and its attorney can utilize all tools available to collect the debt. Which collection efforts work in a given situation, however, will depend on the debtor’s job, bank accounts, location, and other assets. For example, if you or your attorney are able to find out where the debtor works, you may be able to file to garnish their wages. If they have funds in their bank account, these too can be garnished. An attorney can also help you place a lien against any real estate or personal property the debtor may own.
Unemployment benefits, social security, other public benefits are exempt from garnishment, and a debtor’s wages or bank account cannot be garnished if there are other encumbrances on the debtor’s income, such as child support.
If a debtor truly has no income and no property, they are sometimes called “judgment proof.” Some attorneys, especially if they aren’t experienced in collection law, may recommend giving up at this point. In some cases, like if the debtor has moved out of state or is incarcerated, it might make sense to put the collection effort on hold. However, it doesn’t always mean the end of the road for your claim.
A judgment proof debtor does not have to mean you are out of luck. An attorney can still bring the debtor into court to answer questions about their assets, which can take time and resources. Often, a debtor will decide to settle a case just to avoid the court date. People’s circumstances also can change. General District Court judgments are valid ten years in VA and can be renewed after that time is up. A judgment can seriously damage a credit score, so debtors will often get back into contact when they are able to pay the outstanding debt in order to have the judgment satisfied. If a debtor wants to qualify to rent a home or purchase real estate in the future, a potential landlord or mortgage company may require the judgment be satisfied before going forward.
Contact an Experienced Collection Attorney to Help
If you are having trouble collecting a debt for your business or individually, give one of our experienced attorneys a call at 703-771-9740. At Wakefield Law, PLLC, we have the knowledge, expertise, and tenacity to pursue even the toughest-to-collect debts.