When does filing a lawsuit against a debtor make sense?

When does filing a lawsuit against a debtor make sense?

| Aug 19, 2020 | Collections

As a small business owner, unpaid debts can affect your bottom line. While some of your debtors may make good on their payments, you may have difficulty receiving any repayment whatsoever from others. Before filing a lawsuit against a debtor, however, it’s crucial to know if they can afford to pay you. If they cannot, pursuing legal action against them could lead to further collection challenges.

The court may issue a judgment against your debtor, which allows you to file an order to garnish their wages, levy their bank account or put a lien on their property for up to 10 years after your case. But if they have limited income and no valuable assets, you may still have difficulty collecting payment.

It is possible the debtor may be able to pay you but does not want to. In this case, suing them will likely be your only option to collect what they owe. Upon filing your lawsuit, you will want to keep in mind the elements you will need to prove. For your suit to be sound, you must show:

  • The debtor ordered goods or services from your business
  • You and the debtor agreed upon a price for the goods or services provided
  • You provided the goods or services to the debtor
  • You demanded payment from the debtor, which they have not provided

Possible challenges

Your debtor may try all sorts of tactics to stall your collections lawsuit or convince you to drop it. They may dispute your claim against them and allege that you did not meet the deliverables you agreed upon. If your debtor feels wronged or wants to intimidate you, they might file a countersuit against you. Fighting a countersuit can prove costly, but it will likely be worthwhile if the costs involved will remain low compared to the claim’s value.

When a debtor is uncooperative, filing a lawsuit against them may be the only way to receive the money they owe you. An attorney with debt collection experience can help you understand if it makes sense in your situation.