In most cases, the fastest way to recover a debt owed is to work directly with the debtor. But they don’t always respond to collection attempts, and creditors suffer when they are unable to collect the funds. In certain cases, litigation is the necessary next step in the collections process.
When Does Litigation Make Sense?
Collections litigation is a slow process, and there’s uncertainty whether funds can be recovered. Litigation only makes sense in certain situations. Companies that are financially healthy and expect a good ROI on collecting may find litigation appropriate.
Companies in financial trouble, or who don’t expect a good ROI, are best sticking with other means of debt collection. This is what companies who take the plunge should expect from collection litigation.
Filing a Lawsuit
Lawsuits are typically filed in whichever state the debtor lives. There are a number of costs associated with filing a lawsuit, which can vary by claim, including filing fees, the cost of serving, and court costs.
This can be a lengthy process if the debtor is difficult to locate or serve, changes hearing dates repeatedly, misses hearings, or otherwise slows down the process.
The Judgment Process
If the debtor doesn’t respond, the court may issue a default judgment against them. The court can also issue a judgment against the debtor if the debt collection agency wins the lawsuit. A judgment is the first step towards recovering the money, but it still doesn’t guarantee repayment of the debt.
Collecting the Debt
Collection agencies often have to go through costly court-ordered judgment collection procedures to recover funds. When this is necessary, the court may issue a bank levy entitling the creditor to funds in the debtor’s bank account.
The court could also issue a wage garnishment, which requires the debtor’s employer to hold back a portion of their wages to be paid to the creditor. Alternatively, funds could be taken directly from the debtor’s business and paid to the creditor. Liens could also be placed against any real estate owned by the debtor.
However, it’s difficult to take any of these steps without knowing the debtor’s assets and income, and it isn’t always easy to find the information required for garnishments, levies, and other actions. Collection agencies can schedule a debtor exam to get this information in court, but this can add even more time and expense to the litigation process.
Recover Your Debts Today
Sometimes litigation can drag on for months or years, so Altus Global Trade Solutions prefers to handle collections with debtors themselves. In most cases, funds can successfully be recovered without involving the court. However, we do use collection litigation services when it makes sense for our clients.
If your company has struggled with debt collection and cash flow management, we may have a solution that optimizes your business practices and improves your cash flow. Call Altus Global Trade Solutions today at 504-471-0948 to start a conversation.