Is Litigation Worth it? Rising Court Costs and the Decision of Collectors to Sue

The costs of litigation are rising but a lawsuit is still the debt collector’s strongest weapon against debtors who refuse to pay on their account.  Since the costs of litigation are the burden of the agency filing, it’s important to know just how much is too much when a creditor or collection agency is determining whether or not to file a lawsuit.  First, you have to ask the following questions concerning the collection account you’re considering for litigation:

1.       Is the claim large enough?

Many attorneys will not work with a collection case that is under$2,500.  Amounts under this amount will usually be more trouble than they are worth to litigate.

 

2.       If a commercial collection account, is the debtor still in business?

If you are collecting on a commercial account and the debtor has since closed his or her business, it’s highly likely that the assets have already been distributed.  Additionally, if the business was a sole proprietorship, you must serve the summons to the owner's primary place of business or residence, which could be difficult if the business has been closed.

  

3.       Does the debtor appear to have sufficient assets to satisfy a judgment if one is awarded?

In the business of collections, litigating a case in which a debtor doesn’t have sufficient assets to pay a judgment will likely be a waste of your valuable time and resources.  However, many creditors will still file a suit even in the absence of assets to satisfy it in order to “prove a point,” since the judgment will remain on the debtor’s record for 10 years.

 

4.       Will the court costs exceed 10% of the value of the claim? 

Generally, initial court costs should not exceed 10% of the value of the claim. If they do, in most cases, the collection account isn’t worth litigating.