Why Do Creditors Sue?

Litigation happens. Consumers get served. Even though these things are unfortunate and our goal is to avoid them from happening, most especially for our clients, they can still happen. This is part of the process with any debt relief company and any subsequent debt relief program you enroll in. There’s always a possibility that creditors try to take legal action on debts that are owed. Anyone that tells you otherwise is mistaken.

There isn’t always a rhyme or reason as to why accounts get litigated. Like anything in life, things can happen. Some of these things are out of our control. In general, creditors will tend to litigate on a portion of the accounts they own. Some are done so indiscriminately and some are done so discriminately. What purchases were made on the account can matter but they can also have no bearing on the legal status of a given debt account and what happens after a consumer defaults on that account. Sometimes debts are litigated arbitrarily simply because they were placed into a group of debts of a similar tranche, etc.

For the most part, a certain percentage of accounts that go into default will get litigated and sued for lack of repayment. In this scenario, your account could be one of the unlucky accounts that this happens too. Although this occurs, it’s something we all need to deal with and any debt relief company that you’re working with should be able to handle it and create a reasonable settlement with the law firm that’s working on the other side. Now accounts that have legal action taken might be more difficult to settle and might mean somewhat less savings for the consumer. This tends to be the case since there is an additional party (the law firm -which can sometimes be aggressive) involved in the collection of debt obligation. In this scenario, that extra party is also going to be paid for the service they are providing. Since debt collection law firms usually don’t work for free, this can usually have a negative impact on the principal reduction amount.

The Best Way to Deal with Litigated Accounts in Debt Relief?

For the most part, accounts that are litigated might need to be handled a little bit differently. They’ll usually require consumers to sign a stipulated agreement. So, any settlement that is reached usually requires a signed stipulation stating any contingencies/prejudices within the deal and that the annulment of the deal can have consequences (can sometimes lead to judgement, etc.). With all that being said, there isn’t really anything too special about accounts that are with law firms. For the most part, they still get settled the same and paid the same. The process is a little different and you need to be mindful that you’re speaking to a law firm but all in all the general process doesn’t change. You’re still setting a debt that has an original creditor (regardless of whether the law firm is servicing the account or not), you’re still looking for a settlement in full during negotiations and you’re still making payments as you would normally.

The differences lie in the fact that you need to be mindful you’re negotiating with a law firm so there are few more considerations to make:

• Time constraint - You need to be mindful that there is now a time constraint on the file since law firms will typically look to sue on debt accounts. This is how aggressive collection activity tends to be handled when it goes to a law firm. Time is of the essence when you’re working with a law firm since they will look to send your client a summons if they haven’t already. If they haven’t already sent a summons to your client, you could save them the stress and worry of getting served if you are able to negotiate the account quickly enough.
• Legal Status of the account – You need to be mindful of a court case and the current status of the account. It’s important to ask whether there’s a court date assigned to the file yet, as this may lead to a more urgent payoff process. If there is a court case on the file, it’s going to be a big help to know this when negotiating. As this is one more piece of the puzzle regarding information that will help you.
• Non-attorney negotiators are usually at the forefront of the negotiations. You aren’t typically speaking to attorneys to negotiate, although this can definitely happen if you push for it and it’s an important file. Otherwise, the attorney assigned to the court case will be available if your client takes it that far and wishes to appear in court. Most consumers opt to settle outside of court, since that tends to be their rationale when they signed up for a debt relief program, settle what they owe for less. However, in some instances, consumers do go to court to see the case through in the hopes of reaching a better deal.

Litigated Accounts

Litigated accounts can sometimes have a worse settlement and less savings due to their circumstances. Since an additional party is involved in the collection process, the settlement typically needs a higher payback to offset the associated costs of the additional 3rd party. Creditors seek more aggressive collection activity with these accounts so it makes sense if the settlement amounts are not as good as they would be with “non-legal” accounts.

Court costs

For the most part, court costs are annoying for everyone. Going to court is timely and costly for both the creditor and the consumer. It’s not something that creditors want to do, but it’s something that is essential in order to maintain accountability with regards to collecting on debts. Consumers don't typically enjoy spending time in court either but if a consumer gets served a summons and doesn't have a settlement plan in place with the creditor, they won't have many options available to them.

If creditors never went to court, they might have to take on a larger loss burden then they would be willing to handle. On the other hand, going to court too often is also going to be costly and will hurt their bottom line as well. It's a bit of a catch-22 but litigating is ultimately a necessary evil for both sides at the end of the day. Sometimes cases aren't simply settled over the phone and things need to play out in court.

Unavoidable

Litigation, even though it can be costly is sometimes just plain unavoidable. From the perspective of the lender, even if the cost is high, it can be better than the alternative, which is to not receive any payments or settlements at all. If creditors don't practice aggressive collection activity on some accounts, they're much more likely to have a larger percentage of accounts go unpaid. This is similar to police enforcement. If police officers never gave out tickets for speeding, people would be a lot more likely to speed - leading to more chaos and more dangerous roadways. So in a way, sending out a summons is similar to handing out traffic tickets. It's not something that creditors necessarily want to do but it helps enforce the practice of aggressive debt collection activity. Litigating on accounts sets a precedent that helps collection activity on other accounts as well. This precedent demonstrates to consumers that bad things can happen if you don't pay your bills! This is why, it's sometimes a necessary incurred cost on the side of creditors.