Trying to collect bad debts is rarely a pleasant experience. Credit card companies, used car dealers, landlords, etc. have all had experience with it. As the owner of a small business, you might be struggling to collect your own bad debts. Just be aware that civil litigation should be an option of last resort. It is best to avoid civil court if at all possible.
What many people do not understand is that civil court is limited in its ability to help. You can sue the pants off a deadbeat customer, win your case, and still never see a dime. Then what have you accomplished? Very little.
There are times when civil court is the only option left. But even then, there may be reason to just forget about a bad debt and move on. Below are five legitimate reasons to avoid civil court on bad debts.
1. You Could Actually Lose
More than one creditor has taken a deadbeat customer to court only to wind up on the losing end. Despite a very strong case that seems like a slam dunk, the court sees things differently. It is not a good situation to be in.
Losing generally means two things. First, you do not get a judgment and subsequent award. Second, you are forced to pay the debtor’s attorney fees and court costs. Going to court ends up costing more than you would have lost by letting the debt go.
2. Litigation Takes Time
Another thing to consider is that civil litigation takes time. You could file a lawsuit tomorrow and still be working on the case a year from now. Be prepared for the long haul if you decide to sue. And remember that time spent equals money spent. You are going to have to pay for all the time your attorney puts into the case. If you lose, you will be on the hook for that money.
3. Winning Doesn’t Guarantee Payment
Just because you win a civil lawsuit doesn’t mean you’ll get paid. Winning only means that a judgment is entered on your behalf. Your debt is recognized along with the debtor’s legal obligation to pay it. But there is nothing courts can do to compel payment.
You may have to go further by garnishing wages and bank accounts or placing liens on the debtor’s property. How far are you willing to go to get paid? Are you willing to go as far as hiring a judgment collection agency, like Salt Lake City’s Judgment Collectors?
4. Your Company’s Reputation May Suffer
Although the vast majority of civil lawsuits fly under the radar of public exposure, there are no guarantees here either. If word gets out that your company is suing customers, it could damage your brand’s reputation. A subsequent loss in business might ultimately cost more than what you could recover through civil litigation.
5. Litigation Is Stressful and Distracting
Finally, civil litigation is stressful and distracting. You and your company have more important things to worry about. Do you need a court case hanging over your head? Do you need the distraction that comes with preparing for court, trying the case, and ultimately having to jump through hoops to collect?
None of this is to say that civil litigation is never a wise idea. Sometimes it is the wisest choice available. But it’s not automatically the best course of action. When it comes to bad debts, there are other options. Companies should look long and hard at the ramifications of civil litigation before going down that road. Civil court is not all sunshine and roses.
