I’m Owed Money – Where Do I Start?
At one point or another someone is likely going to owe you money. If you run a small business in South Jersey, it’s almost inevitable. So how do you collect what is rightfully yours?
Contrary to the lawyer battle cry, the answer is not always to “sue them!” Sure, it is certainly satisfying to serve someone who has attempted to take advantage of you with a summons. However, before doing so, it’s important to evaluate your relationship with the individual/client/customer, and their reasons for not paying. Most significantly, would you like to do further business with this debtor? Are they simply having cash flow issues? Was there a misunderstanding? What does their past history look like?
If you’re not quite sure of the situation, give the debtor a call. In as much of a non-confrontational tone as you can muster, remind them of the debt and the terms of the agreement. At this stage, making threats is counter-productive but so is being overly accommodating. In general, a friendly yet firm approach produces the best results.
Regardless of the conversation’s outcome (barring the miracle that is immediate payment), send the debtor a letter memorializing the terms of the initial agreement as well as your recent telephone conversation. Send this letter by certified mail to confirm its receipt. Also, be sure to include a deadline for payment or a response. As the original debt holder, you are not subject to the Fair Debt Collection Practices Act and may give the debtor as many days to respond as you’d like. We recommend ten days from the date of the letter. Ten days is enough time to account for delivery time and consideration by the debtor. In our experience, if there is not a response within ten days, there isn’t going to be one.
The content of your demand letter should vary based upon the situation. Obviously, threatening legal action is not conducive to continued business. Just as a purely informational reminder will do little to spur action from those more unscrupulous of debtors.
Your demand letter did not work. Now what?!?!
You have three options:
– File a Lawsuit on Your Own
– Hire a Collections Agency
– Hire a Lawyer
Filing a Lawsuit on Your Own
Unfortunately, New Jersey law prevents your business from representing itself in court (unless you are a sole proprietor). However, as an individual, it is absolutely your right to file pro se.
For the purposes of suing on a debt, New Jersey civil courts are divided into three sections. They vary in procedure and the amount in controversy.
Law Division
– Claims over $15,000
– Discovery period lasting between 150 and 450 days
Special Civil Part
– Claims up to $15,000
– Abbreviated discovery period
– Trial dates generally scheduled within three months of filing Complaint
Small Claims
– Claims up to $3,000
– No Answer required; appearance at trial date sufficient
– No discovery period
– Trial dates generally scheduled within six weeks of filing Complaint
Law Division cases are not only lengthy but subject to the New Jersey Rules of Practice. As a result, we do not suggest representing yourself (not from self-interest, we promise).
Special Civil Part also is subject to the New Jersey Rules of Practice. However, some of its practices are amended to reflect the Special Civil Part’s condensed format. New Jersey Courts’ website offers a great how-to-guide for pro se Special Civil Part litigants which you can find here.
Small Claims court is the Wild West of New Jersey courts. The vast majority of litigants are unrepresented, the cases are, for the most part, the result of personal grievances, and the Judge generally doesn’t want to be there any more than the next person. It makes for interesting viewing, and a certain headache.
Hiring a Collections Agency
Many collections agencies focus solely on bulk collections. However, there are collections agencies that will handle individual debtors. The value in using a collections agency is their ability to manage a large debt portfolio, track down individual debtors, and relentlessly contact debtors in an effort to settle the debt. Communication from a collections agency may also give a debtor a sense of urgency.
However, for those cases where there is a single debtor with a known address, a collections agency is likely not the best route.
Hiring a Lawyer
Surprise, surprise. We recommend retaining a lawyer to assist you in collecting a debt. However, only in cases where it appears as if payment is not forthcoming and/or you do not wish to conduct future business with the debtor. Undoubtedly, a demand letter from your lawyer threatening a lawsuit doesn’t do a whole lot to help a business relationship. However, if you’ve heard enough excuses and promises to pay, hiring a lawyer is the most effective way to see actual cash. First, debtors tend to pay more attention to attorney correspondence. They realize that legal consequences loom if they fail to pay the debt. Second, this is what lawyers do. We know how the game is played, its rules, and what the likely outcome is. Third, even if you “win” in court, you may not see any actual money. Lawyers know the best ways to turn your judgment – which is worth only as much as the paper it is printed on – into cash; by garnishing wages, levying bank accounts, and creating statewide liens.
There is no way around it – attempting to collect a debt is a frustrating process. It takes time, patience, know-how, and a sense of objectivity. It can certainly be done on your own. However, to ensure that you receive the most of your money, we recommend an experienced debt collection lawyer.