Once you have exhausted your requests to a debtor for payment, you may wish to consider other means for debt collection. Your options are to either retain an attorney or hire a debt collection agency. Which option is right for you?
In either case, you will have to pay a fee that will be a non-recoverable expense in many cases. You should consider the size of the debt, the likelihood the debtor has seizable assets and the competence of the attorney or agency. Here are some other considerations:
Competency of the Collector
Attorneys and collection agencies often are skilled at one particular kind of debt collection. For example, the agency or attorney may have had past success in dealing with a particular business or have particular knowledge of the debtor. You will also want an agency that is bonded, insured, licensed and knows the parameters of the Fair Debt Collection Practices Act.
2. Do Your Due Diligence
Even if the collector seems competent, inquire regarding the methods used to uncover assets or even to locate a debtor who may have disappeared. Many use subscription-based data bases or skip tracing methods, allowing them a good opportunity to locate a missing debtor. If you do hire an attorney, find a firm that practices collection law exclusively.
You may also inquire regarding the technology a collection agency and law firm uses such as sophisticated software, phone systems, and training of its employees. Many collection agencies are skilled and very competent in getting reluctant debtors to begin paying on their obligations.
Fees and Costs
A prime consideration is cost and expenses. Some agencies and attorneys will charge a flat fee, at least until litigation is considered. Most operate on a contingency basis such as 25% to 50% of the amount collected. You may wish to consider if it is worth pursuing this way of collecting the debt.
An attorney may charge an hourly fee along with filing and service fees, or at least take a percentage of the funds collected. Lawyers often charge a fee for just having a file, billing you for “reviewing the case.” You should discuss this with the attorney or place a time limit on when the debt should be litigated, dropped or consider another option.
If the debt is supported by credible documents so that a default or summary judgment is likely, the hourly costs may be minimal. The real costs may lie in the post-judgment debt collection efforts unless your attorney has located assets subject to seizure such as business equipment, bank accounts, real estate or accounts receivable.