How to Recover Unpaid Debts

Filing a lawsuit in court is one way to collect an unpaid debt.

As a business owner, you will sometimes deal with a client who has outstanding debt and, despite receiving several "past due" notices, refuses to pay. You can collect on unpaid debts, but the Fair Debt Collection Practices Act (FDCPA) requires you, or the collection agent you hire, to follow specific guidelines in collection attempts. While the process may vary slightly from state to state, the steps for recovering unpaid debt are generally the same.

Instructions

1. Call the client and attempt to work out payment arrangements. Set an amount the client will pay against the debt and a due date for that payment. Politely let the client know that, should she fail to make the agreed upon payments, you may have to seek legal action.

2. Send the client a "demand letter" if you are unable to make payment arrangements or the client fails to make the payments you discussed. This is the first step to seeking legal recourse to recover the unpaid debt. According to the FDCPA, the demand letter must include the amount of the debt, the name of the creditor, a statement that gives validity of the debt if the client does not dispute it in written form within 30 days and that verification of the debt will be available if requested in writing within 30 days.

3. File a case with the county court in which the client resides, suing for the unpaid debt, if the client fails to contact you within 30 days of the date on the demand letter, or fails to make agreed upon payment arrangements after receiving the demand letter. You can file a lawsuit yourself in small claims court if the amount due does not exceed the limitation on small claims in that county. For larger amounts, consider hiring a collections attorney to assist you with the court process.

4. Attend court dates and hearing, providing all documentation validating the debt owed, in order to obtain a judgment against the client for the unpaid debt.

5. Consult with legal counsel to collect the debt through legal means, such as garnishment of wages, if the court grants judgment against the client and in your favor. The provisions for such actions vary from state to state.

Tips & Warnings

• If you have several unpaid debts for your business, you may want to consider hiring a collection agency or collections attorney to handle them, or hire a legal assistant with collections experience to work in-house on collecting them.

• You can collect interest and attorney fees on a judgment if provision for those items was on invoices the client received or in the contract between your business and the client. Seek the assistance of an attorney to draft an appropriate contract with such provisions.

• Be sure that whoever contacts the client who owes your business money does not harass him about the debt, make threats, call at odd hours or speak to him inappropriately. All of these tactics are in violation of Sections 805 and 806 of the Fair Debt Collection Practices Act.

References

• Federal Trade Commission: Fair Debt Collection Practices Act
• Michelle Cramer; 5 years experience as legal assistant specializing in debt collection; Columbia/Springfield, MO