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DON'T BE HAMMERED BY YOUR DEBT

DON'T BE HAMMERED BY YOUR DEBT

Thursday, July 27, 2006

The Different Ways To Pay Your Attorney To Collect Your Debts

Probably the biggest reason that small businesses chose to write off bad debt rather than pursue legal debt collection is they hear the age old adage of don’t waste good money after bad ringing in their head. Small business owners have a perception that it will cost them more in attorney’s fees to legally collect a debt than the debt is worth in real dollars. This perception was created by and is perpetuated by the legal profession. Too often attorneys have taken a collection matter for an hourly fee and treated it just like any other piece of litigation without regard for the client or for the debtor they are pursuing. The attorney "works" the file running up the bill without focusing on the ultimate goal of getting the debt paid. The end result is that the client pays three times the amount of the debt in attorney’s fees and at the end of the day only has a piece of paper from the court saying the debtor legally owes them money. In that case, the attorney has done a disservice to both the client and the legal profession.

When a debt collection lawyer takes a case, he should make a fundamental determination of whether the debt is collectable. If the debt is not reasonably collectable, the debt collection lawyer should candidly discuss that with the client and let the client make the decision as to whether or not to pursue the debtor. Once the decision is made to sue the debtor, the debt collection lawyer should devise a plan to get the debt paid. Payment of the debt is the goal and the debt collection lawyer must keep that goal foremost in his mind and in his actions. . The goal is not to milk the client out of fees, nor is it to punish the debtor, nor is it to get a judgment, nor is it harass, intimidate or scare the debtor. The only goal is to get the client paid the most money possible in the shortest period of time. Sometimes, that goal doesn’t even require the lawyer to file a lawsuit and sometimes it requires the lawyer to abandon what he thinks is an excellent suit in exchange for a good settlement. All of that said, once a creditor decides to hire an attorney and sue a debtor, the subject of how to pay the attorney must be discussed.

There are essentially two fundamental ways to pay an attorney; by the hour and as a percentage of what he collects. Some attorneys will only work by the hour. Hourly rates can vary greatly depending upon geography, experience and quality. If you hire an attorney by the hour, you will most likely pay him in one of two ways. The first way is for him to bill you each month for the time he spent working on your case. You should receive an itemized bill telling you exactly what he did, how long it took him and how much it cost you. You would then mail your attorney a check paying that invoice. The second method of hourly billing is to have the client deposit a retainer. A retainer is a sum of money deposited with the lawyer that the lawyer bills against. You should still receive a monthly invoice from the lawyer showing you exactly what he did, how long it took him and how much it cost you, but you will not have to mail him a check. The invoice will also tell you the retainer balance. The items that are negotiable with an hourly charge lawyer are: (1) his hourly rate, (2) the smallest increment of time for which he will bill–if he answers the phone and talks a minute is that charge recorded as a tenth of an hour, a quarter of an hour, etc., and (3) the amount of any up front retainer.

The second way to pay your attorney is as a percentage of what he collects. Most people call this a contingency fee, as his fee is contingent upon him actually collecting something. The client will be responsible for paying expenses such as the filing fee, but not an hourly rate for work the attorney performs. When the attorney collects money from the debtor, he will deduct a percentage as his fee. The amount of that percentage may be determined by the volume of cases that client is placing with the attorney, the dollar amount of the debt sought to be collected or the expected difficulty in collecting the debt. The items that can be negotiated with a continency fee lawyer are; (1) the amount of the percentage, (2) what items will be regarded as expenses and (3) at what point will the attorney’s fee be deducted.

A third way to pay your debt collection attorney is by blending the hourly rate and percentage. There are any number of ways to customize a billing method to suit a client’s needs and ability to pay. A simple method provides for an hourly fee to be charged on each account up to a maximum ceiling at which point the attorney begins working on a continency basis. Another way is to utilize a sliding percentage based upon the amount of the debt.

A fourth way to pay your debt collection attorney is to utilize an attorney fee provision in your contract. Make your customer responsible for paying all of the cost of collection, including a reasonable attorney’s fee, if collection becomes necessary. The attorney would then be paid a percentage of the debt (as determined by the court) in addition to recovery of 100% of the balance of the debt. The attorney then keeps that amount as a court awarded attorney’s fee.

A fifth way to pay your debt collection attorney is to exchange services. The act of bartering has experienced a resurgence with the advent of internet web sites like www.craigslist.org. You may be able to pay your attorney by providing the services your business offers in exchange for "free" legal work.

The bottom line is that attorney’s fees should never be an impediment preventing your company from collecting it’s past due debts. If your attorney won’t discuss alternate methods of payment or negotiate fees, find another attorney.

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