Small Claims Court and Debt Collection: Mistakes to Avoid

Posted by Marilyn Miller on August 24, 2018  /   Posted in Uncategorized

It happens every day. We get calls from small business owners who have taken matters in to their own hands and taken their non-paying customers to small claims court. They get a judgment but the debtor still does not pay. What went wrong?

Although the small claims process was designed to give small business owners access to the court system, it is not the answer for all files. Here are some common mistakes we see:

1. Suing the wrong party – If your beef is with a business, and you do not have a personal guarantee, you likely have no cause of action against the owners. The opposite is also true. If your customer is a person using a trade name, (not a corporation), then it may be pointless to sue the business alone. It is important to make sure you have the right party. Of course, this means you have gathered the correct customer information and have a good customer contract to begin with.

2. Suing a party with no assets. – Make certain there is something to get!

3. Suing someone who already has many judgments against them – Try to do as much research as you can before you file the lawsuits. Some states have a very good website where you can look to see if your customer has other judgments again them.

4. Filing suits that do not make economic sense – If you have to pay $100.00 to file suit, is it worth it for a $250.00 debt? There may be better options.

5. Suing for the wrong amount – Make certain your suit reflects all charges and payments. You will need to have a customer financial agreement in order to ask for pre-judgment interest.

6. Not asking for post-judgment interest or other costs – Do not make the mistake of assuming that you will be awarded interest or your costs of collection. Ask for it! The court may or may not award everything, but you have no chance of getting what you do not request.

7. Not getting proper service – Getting service means making sure the person you are suing actually receive the lawsuit. Take the extra step of making sure you research and have the correct address.

8. Not bringing the right forms to court – I once saw a business owner spend all morning in court only to have his case dismissed because he did not bring proof that the defendant was not in the military. Most courts have guides to help you with the process, or ask the court clerk for help.

9. Not bringing background material to court – Even if the defendant has never responded to you and you expect that they will not appear, come prepared to do battle. Bring your entire file.

10. Expecting that the court will collect the money for you – Small claims court does not collect the money. You have to do that, or hire someone to do it for you.

Do not make the decision to take files to court yourself soley on your desire to save on collection agency fees.Take a look at your past due receivables. Perhaps it makes sense to hire a collection agency or an attorney to help you collect money without having to spend your time away from your business. Not all files should be litigated. Some files are only going to be collected if they are litigated. The magic is in knowing the difference.

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