Catherine Wu的部落格

An introduction to legal forwarding and the costs involved in the United States

Collection agency strives to make collections prior to forwarding files to outside collection law firms.  In the United States, lawsuits must be filed in a court where the debtor is located.  STA has relationships with hundreds of US law firms, each of which is a member of the Commercial Law League of America.

If agencies are unable to achieve satisfactory collection results, we will consider recommending that the file be forwarded to our outside collection law firm that provides services in the area where the debtor is located.  We require authorization from our clients to send the file to our outside law firm, although many of our clients have given us discretion to make this decision, without specific authorization.  The contingency rate will increase to allow for a contingency rate to be earned by the law firm, as well as a reduced rate to be earned by agency. Generally, the contingency rate increases to or is maintained at about 25-30% legal rate.

We provide the history of the case to the law firm.  We do our best to determine whether the debtor is still in business prior to forwarding a file to our outside law firm.  There is no point in lowering our credibility with our law firms by sending them files that are clearly uncollectible.

The outside lawyer will make a demand upon the debtor by letter and telephone call.  They will attempt to determine that the debtor is in business and research the corporate status of the debtor.  If the debtor is unresponsive to their demands, they will provide a recommendation concerning the filing of a lawsuit and their financial requirements to do so.

The filing of a lawsuit always requires the payment of monies to the law firm.  Monies required have two components.  The first component is court costs – this covers the cost required by the court to accept the lawsuit, and also includes estimated process server fees and the cost of entering a judgment.  The amount varies from court to court and upon the amount of the lawsuit.  The larger cities and the greater debt amounts have the highest court costs.  Court costs generally vary from $750 to $1,000. 

The second component is a “noncontingent suit fee”– according to industry standards, the law firms are entitled to charge around 10% contingent suit fee, in addition to their contingency rates.  This would increase the contingency rate to be deducted from any collections to a total of 35% (25% legal rate plus 10% suit fee).

In most cases, pursuant to Commercial Law League of America standards, a law firm will require part of the suit fee to be paid upfront along with the court costs.  This is called the “noncontingent suit fee” and is part of the 10% suit fee.  Often, the law firm will ask for half of the 10% suit fee to be paid prior to the filing of the lawsuit as a non contingent suit fee.  This amount is non refundable, if there are no collections.  If there are collections, any non contingent suit fee already paid will reduce the suit fee to be withheld by the attorney.  For example, if the client has paid $500 as a non contingent suit fee and the collection proceeds are $10,000, the client will now receive $7,000 from the proceeds.  The contingency fee withheld from the collected proceeds is $3,000 plus the noncontingent suit fee previously paid of $500 which totals $3,500 or 35% of the collected proceeds amount.

Should a debtor file a counter claim to our lawsuit, our lawyers have the right, pursuant to Commercial Law League of America standards, to charge hourly rates in the defense of the counter claim.  Most of our attorneys are flexible and cooperative in this regard and we have found that less than 1% of filed law suits result in our attorneys requiring hourly charges to defend counter claims.

Notes for international creditors:  normally our lawyers will state that the creditor should be prepared to have a representative appear at a US court hearing to support the case.  Additionally, international creditors, without assets in the United States may be required, if the debtor’s attorney demands, to purchase a bond against court costs awarded to a winning party.    These court costs are not attorneys’ fees but out of pocket costs and are usually limited to less than $2,000.  So, this is more of an inconvenience to an international plaintiff, than a severe financial cost.  And the bond will never be used should the creditor/plaintiff be successful in the case.

Finally, if a judgment is taken against a debtor, the case moves to the judgment enforcement stage.  The law firm will again contact the debtor or its attorney to attempt voluntary collection of the judgment amount or to negotiate a payment plan.  However, most often a debtor that has a judgment entered against it will not cooperate to payment.  In such cases, our law firms may request additional funds for judgment enforcement proceedings which include most commonly a bank search and levy on any bank accounts found, wage garnishment if the debtor is an individual, a demand for an examination where the judgment debtor must appear for questioning along with its books and records, and sending a sheriff to the debtor’s premises to seize physical assets.  Judgment enforcement procedures can be expensive and STA will guide the client, at every stage of the litigation process, to make expenditures wisely, considering the amount in question and the likelihood of success.

It is important to note that we do not charge any fees for its work on legal files (other than potential contingency fees on collections), and all monies paid by clients are 100% remitted to our outside law firms.  We have no ownership or profit sharing relationship with any outside law firm and we are thus free to choose the most effective law firms throughout the country.