Legal collections

3.1. General information

The judicial system of the U.S. is unique, as it’s made up of two different court systems: the federal court system and the state court system. Whilst each court system is responsible for hearing certain types of cases, neither is completely independent of the other and the systems often interact. Solving legal disputes and maintaining legal rights are the key goals of both systems.

3.2. Legal systems

The U.S.’s legal system is comprised of 51 separate legal systems: the federal court system and the court systems of the 50 states. A vast majority of commercial collections matters are handled through the state and county courts.

3.3. Required documents

In order to apply a legal dunning procedure, we need a clear statement of account, indicating the payments and credit notes that have been booked regarding the outstanding invoices.

In the case of a lawsuit procedure, the assigned attorney will require copies of the complete contracts, orders, order confirmations, delivery notes, invoices, and the likes. Every part of the trading relationship should be provable by documentation.

In case of dispute, proof of the conversations or emails between you and your debtor should also be kept and provided to the assigned attorney.

3.4. Legal dunning procedures

This is most commonly known as initial legal proceedings. The attorney assigned to the case is required to make efforts to collect or settle the outstanding debt prior to commencing any legal action.

If the debtor fails to respond or pay the outstanding debt in the initial phase, then the attorney will provide recommendations and suggestions for further actions and their costs. Once an attorney is involved, they will charge a commission fee on any collected amount.

3.5. Lawsuits

Once the attorney receives the suit’s requirements and any necessary documentation, they will prepare a summons and complaint and file both with the clerk of the court. It's advisable that the lawsuit is filed nearest to the debtor’s location.

All the courts require personal service of process on the debtor, and most courts require that the debtor be served with a summons and complaint within 90 to 180 days after the lawsuit is filed. The courts will frequently dismiss the lawsuit if the debtor is not served within the state’s statutory period for service of process.

3.6. Appeals

Appeals are limited to cases in which there are legal disputes as to how the laws are applied to the facts of the cases. Factual issues cannot be appealed.

3.7. Expected time frame

The average duration of a legal dunning process is between seven and 30 days, whereas a court procedure can take up to two years or longer, depending on the complexity of the case and the backlog of the courts in that jurisdiction.

3.8. Costs and interest in the legal phase

Legal collections in the U.S. is handled by local attorneys on a contingency fee basis. Our attorney will submit to us recommendations and the suit’s requirements. The suit’s requirements consist of court costs and a non-contingent suit fee, where the latter can be up to 5% of the balance placed for collections. That amount is credited towards an overall contingent suit fee of 10%, plus the previously mentioned commission fee charged on any collected amount.

The only exception to the contingency fee arrangement is when the account is heavily disputed or when the debtor files a counterclaim against you. The attorney must then defend you against the counterclaim, and in those cases, the attorney will require compensation at an hourly rate.

Unless you have signed a contractual agreement allowing interest, interest is only allowed by the courts once a judgment has been filed. All the other fees and collections costs are at the discretion of the presiding judge, and, in most cases, never allowed.

(End of chapter 3 - Legal collections)

Opt in to our latest publications*
and get the Debt Collections Handbook - Global for free

*We will only use your data in accordance with our Privacy Statement. You can unsubscribe at any time.