Ever have someone borrow money from you and never paid it back? Or, have you ever co-signed for someone’s debt who defaulted on it and you are now responsible for that debt? Or, have you ever given someone your money to “invest” in a business opportunity and no accounting of profits/losses has been provided? That someone is now avoiding you and refuses to honor his obligation to you. What are your options to collect?
The first thing most people normally do would be to consult with an attorney to file a collection lawsuit. However, for whatever reason, some may not be able to afford an attorney, or, the minimal amount of the debt does not justify the involvement of an attorney. In these cases, alternative options are open.
The first option would be a collection lawsuit in small claims court. In small claims court, parties cannot be represented by attorneys and parties appear on their own before the judge. The process of going to small claims court is relatively simple. A one or two page complaint form is filled up. Filing fees are paid. The Complaint is then mailed or served on the debtor. The court then sets a hearing date at which time the creditor can present evidence about the debt being collected. Decisions are normally handed out immediately after the hearing.
The limitation to a small claims court action, however, is that the court can only issue a judgment below a certain amount. In California the jurisdiction of small claims court is only up to a maximum of $5,000. Thus, if a creditor is owed $8,000 but files a claim in small claims court, only a judgment of $5,000 can be issued by the court.
The other options would be to go to mediation or arbitration with your debtor. If the debt is disputed or the terms thereof are not clear, then this option might be a viable choice. In mediation, a mediator tries to bring the parties together to a mutually acceptable solution. Each party normally has to compromise to arrive at a settlement. An arbitrator, on the other hand, is someone selected by the parties who will make a decision on the merits of the parties’ positions. The decision of the arbitrator may be binding or non-binding depending on the agreement of the parties.
Another option would be for you to contact a collection agency and have them do the collection for you. However, collection agencies may or may not accept your case depending on their chances of getting it done; and, if they do accept it they normally charge a hefty fee of 50% of whatever is collected.
If you are the creditor collecting on a debt, getting a favorable judgment in small claims court or arbitration; or, settling in mediation may or may not result in you getting your money back. Getting a judgment or winning a case is not the end of it because you will still need to collect on it by executing the judgment: foreclosing on collateral, garnishing a debtor’s wages, or attaching a debtor’s properties. Thus, winning a case may not necessarily result in you getting your debt paid depending on whether or not debtor has available assets that you can run after.
Good luck.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
