COLLECTIONS: HOW TO GET YOUR MONEY

One of the most common types of lawsuit is that for the collection of a debt. Businesses and individuals must often resort to litigation in order to collect money due them. If the debtor has signed a contract indicating the amount of money that the debtor owes and when that money is owed, then it is much easier to collect.If there is merely an oral contract, there may be an argument over the terms of the contract, which will make it much more difficult to collect the debt. Always put agreements in writing to avoid this situation. Also, under Arizona law and most other states law, certain contracts must be in writing to be valid. This doctrine is called the Statute of Frauds and it requires that a contract be in writing for any transaction involving real property, the sale of goods in excess of $500 or any contract that last for a period longer than one year. This is not an exhaustive list of Statute of Frauds requirements and there are exceptions to these rules. In short, put contracts in writing so there is no question to the terms thereof. In Arizona, oral contracts are enforceable, but as discussed, are more difficult to enforce than written contracts. The statute of limitations, or time period within which you may file a legal action to enforce an oral contract, is 3 years. You have 6 years to enforce written contracts. When the time for enforcement starts to run will depend on the circumstances of your particular situation and you should contact an attorney to make sure that you do not lose your right to enforce your contract.

In Arizona, you are entitled to attorney's fees and costs for filing a lawsuit to enforce a contract. However, you are only entitled to receive attorney's fees and costs should you prevail in your lawsuit. Also, attorney's fees and costs are granted at the judge's discretion and he or she may determine what is reasonable and what is awarded. In short, you may be granted an award of attorney's fees, but that will not be until the outcome of your lawsuit and only if the judge grants it. Typically, your attorney will require you to pay the legal fees and costs throughout the case so any award of attorney's fees and costs is more to compensate you at the end of your lawsuit.

PRE-LAWSUIT COLLECTION EFFORTS

It is always beneficial to make an attempt to collect an outstanding debt prior to filing a lawsuit. However, you must be sure that you comply with the Fair Debt Collection Practices Act (FDCPA). The FDCPA is a federal statute that was adopted to control abusive debt collection practices. It applies to any person trying to collect a consumer debt, which means any obligation arising out of a transaction in which the money, property, insurance or services were primarily for personal, household or family purposes. If you are collecting a debt for yourself, the FDCPA does not apply to your collection efforts. However, if you are a collection agency or a person collecting debts on behalf of a creditor and those debts fall within the "consumer" category then the FDCPA applies. Depending on the circumstance, the FDCPA may apply to an attorney collecting a debt on your behalf. If the FDCPA applies to the collection of your debt then you must make sure that you allow the debtor thirty days to dispute the debt in writing and also to request an accounting. If the debtor does not dispute the debt or request an accounting within thirty days, then the debt is presumed to be valid and you may proceed to collect it through whatever means you choose. If the debtor disputes the debt within thirty days or requests an accounting, all collection efforts must cease until the debtor is given the information he or she has requested. There are other provisions to the FDCPA, but this is the main requirement that applies to writing a demand letter. Clearly, you should treat the debtor fairly and not make threats that are inappropriate or false. If a demand letter does not yield payment, then you will need to pursue the matter through court. The amount owed will determine where you will need to file your lawsuit. If the amount is under $2,500 you will want to consider filing the action yourself in Small Claims Court. If it is for any amount under $5,000, you will want to file in Justice Court and for any amount exceeding $5,000 you will file in Superior Court. Mainly, you want to obtain a judgment for the amount owed so that you may pursue other collection methods.

ONCE YOU HAVE A JUDGMENT

A judgment is only a piece of paper. The judgment means that you are entitled to a certain sum of money, but it does not mean that the debtor, or the person/entity, that owes you, will actually write you a check. Ideally, once there is a judgment against a debtor, that debtor will pay. Unfortunately, that rarely happens and you will be forced to take legal action to enforce your judgment. The main problem with enforcing a judgment is that sometimes the debtor has no assets so there is little to collect from even though you are entitled to collect. You will always want to weigh the possibilities of actual collection with what you are spending to collect. Once you have a judgment for the amount owed, there are several avenues for collection. First, you may request a credit report on the debtor. This may tell you what the debtor owes to others and the chances you have for collection. Second, you will want to record the judgment with the County Recorder's Office in any county where you believe that the debtor owns property or lives. Third, you may want to pursue other collection methods, such as, garnishment, foreclosure, and execution. Only garnishments are discussed in this fact sheet.

GARNISHMENTS (Earnings and Non-earnings)

One of the most effective methods for collection is through a garnishment. There are two types of garnishment: earnings and non-earnings. A garnishment for earnings is a request to the court to allow you to take 25% of the debtor's non-exempt earnings from each paycheck. A non-earnings garnishment is a request to the court to allow you to obtain funds owed to the debtor by another entity when these funds are not wages or considered earnings under the law. Another type of non-earnings garnishment is the garnishment of a debtor's bank account. If you are granted a bank account garnishment, the bank will issue you a check for the amount of money in the debtor's account in excess of $150.

BANKRUPTCY

If the debtor files for bankruptcy and lists your debt as a debt whether you already have a judgment or not, you must cease collection efforts. Depending on the type of bankruptcy action filed, you may or may not have your debt discharged by the bankruptcy court. Typically, if your debt is discharged, you will lose your right to collect it forever. Sometimes, however, the debt will be reduced or the bankruptcy court will institute a payment plan. Should you receive a notice that the debtor is filing bankruptcy, you will want to discuss your rights as a creditor with an attorney specializing in bankruptcy law.

Disclaimer

This fact sheet is meant only as a general description of the current laws as of the date of the writing. They are not exhaustive and are intended to be only an overview. Many issues may appear simpler than they are, and one should always contact an attorney to obtain a complete, accurate interpretation of the law given the individual circumstances. Thompson Klausner Law Group, p.c. makes no representations as to how the law would affect a particular situation and intends only to illustrate areas of concern and give information.

© 2000, Thompson Law Group, P.C.

Lisa C. Thompson, Esq.
Thompson Law Group, P.C.
2321 E. Speedway Blvd.
Tucson, Arizona 85719 - USA
www.thompsonlawgroup.com
(520) 882-5633  Fax: (520) 745-0616