Criteria for Choosing Not to Initiate a Small Claims Court Action

The debtor and the deal should determine if you sue.

Regardless of what your small claim is, if you are faced with the problem of collecting a debt or fee, you have alternatives. One of the most commonly chosen options is to turn over the problem to a collection agency, a tactic I employed several times without much success.

Pay no attention to the fact that they take 20% to 25% if their collection efforts are successful. According to the Nilson Report, an industry newsletter published in Oxnard, California, collection agencies retrieve a mere 7.5 cents out of every dollar they attempt to collect.

Savvy debtors are well aware that they are amply protected from certain abusive practices of collection agencies by the 1977 Fair Debt Collection Practices Act. As a consequence of the act, while an individual creditor may call a person at work or at home after 9:00 p.m. or threaten to sue, a collection agency is legally prohibited from doing the same.

My experiences with collection agencies demonstrate that they are capable of collecting the fees or debts that are generally collectible to begin with. However, the small claims court system enables people to "get the gelt" for themselves without recourse to a collection agency, which will pocket an unearned share of the money.

For the committed do-it-yourself (pro se) creditor, a review of your circumstances is a prerequisite. Inherent in any decision whether or not to commence a legal battle or flee from it are some basic considerations that must be examined. It is foolhardy to engage in a small claims litigation without examining the factors that will have some bearing on whether you will ultimately prevail.

Insofar as possible you should review the factors that may determine (1) whether you have a reasonable chance of winning a judgment in your favor and (2) whether you have a reasonable chance of collecting. Here are some considerations that may have a bearing on the outcome.

When to Avoid Small Calims Court

The considerations listed here are applicable to all potential claimants. I believe that many claimants should and will avoid pursuing the small claims court approach simply because their personality type renders them highly uncomfortable in situations that may involve direct confrontation. It is for that same reason that the service provider is often loath to actually call the debtor himself to request payment, an elementary approach that is often effective. In fact I highly recommend such an action as a first step because what the debtor says during that call may well provide the incentives to either initiate or refrain from initiating an action.

You will probably want to avoid small claims court if:

• Your debtor is a lawyer – specifically, a collection lawyer.

• You are not willing to accept the small claims court maximum (e.g. $3,000 New York, $2,000 New Jersey, $2,500 Connecticut) as sufficient compensation.

• Your debtor has no assets (i.e., is not employed, has no property, has no car or checking account, or has already named you as creditor in his bankruptcy action).

• You imagine the debtor is homicidal or sociopathic.

• You may be vulnerable to a counterclaim with some substantive merit, or you believe the debtor may be able to support bringing a speculative counterclaim with adequate evidence, including documentation and testimony from witnesses or experts.

• There may be a justifiable reason for the nonpayment which, if the defendant were to document it at a hearing, would allow him to prevail. Moreover, never underestimate your adversary's ability to fabricate the truth. Gather your supporting documents thoroughly, as though he were going to be present at the hearing with evidence supporting his position. (My experiences indicate that the defendant will show up 5% to 10% of the time and then only because he believes he is legally obliged to be present, rarely to contest the validity of your bill.)

• The debtor has referred many patients/clients/ customers and by forgiving the bill your return will be even more referrals.

• Your debtor is aware of facts, or even rumors about you, that could be brought to light by a public proceeding.

• If you feel an investigation by the Office of Professional Discipline, or the peer review committee of your local professional association, licensing authorities, or other patient, client, or customer claim review board will not vindicate you.

I recall being paid with an American Express card for the service I provided. The bill was in dispute and my patient stopped payment. In this case I was eventually paid, but I had to spend much time explaining to the review board person at American Express that my charge was appropriate for the services I rendered.

• You don't have an accurate home or work address for the debtor and you're not willing to spend $100 for a skip-trace agency to locate your debtor's place of employment. (The minimum fee is $25 to initiate a search, whether it's successful or not.)

• You don't know the defendant's social security number (not a must, but can be helpful in locating a person or his assets).

• You don't have a signed contract with the defendant.

• It doesn't bother you to lose the amount of money involved, or it's not worth the time and trouble. (However, if you considered buying or have bought this book, you are just the person it does bother.)

• Your records, documents, and contracts are not sufficient to prove your claim. Of course this does not preclude you from bringing a claim. Insufficient documentation has caused me to lose a case I should have won, but just initiating a claim that never reached hearing status prompted more than one debtor to make payment.

CONFRONTATION: AN ENLIGHTENING STORY

In more than one instance, on the night of my court hearing, I arrived at the court and sat down to await the "calendar call." As I surveyed the scene, I realized I had unintentionally seated myself next to my patient. At first I was startled, but managed to seize the moment, and began to exchange pleasantries. In so doing, I discovered that my patient had come to court that night, not to contest, but to arrange a settlement. He had been too embarrassed to contact us by mail or telephone at the office. We continued on to the hearing where the arbitrator formally witnessed the settlement agreement and wrote the terms of our settlement into the judgment.

This event reinforced my belief that in some cases the only way to confront the nonpayment issue is in a formal environment such as that offered by the small claims court. In essence you are fully awakening the debtor to responsibility for his bill and the seriousness of your intentions to collect it.