Collecting Debts in Small Claims Court
N obody wants to go to court, even if you're in the right. Filing a claim costs money (typically about $100), and once a judge agrees to hear your case, you’ll need to gather evidence—pay stubs, receipts, letters, emails, everything—and prepare a statement.
Even If the judge rules in your favor, then you still have to collect the money. The court “settles” your dispute, but the court does not collect your settlement.
Three out of four freelancers will have difficulty collecting a debt at least once during their career…
And unless your settlement includes compensation for the time and energy you’ve spent preparing for your hearing, then you might end up winning the battle, but losing the war.
So the question remains: Is it worth it?
But It’s the Principle…
According to the New York-based Freelancers Union, three out of four freelancers will have difficulty collecting a debt at least once during their career. If a customer defaults on a payment, and your business is out, say, $500, then you might just chalk it up to experience—you've learned your lesson and you'll be more careful next time.
[highlight] If you need help with your case, we strongly recommend using our partner, Rocket Lawyer [/highlight]
But what do you do when a client skips out on a big bill? Can you afford to lose $10,000? $20,000? Every business owner has a limit, and if you’ve been defrauded, duped, or swindled out of a significant amount of money, then small claims court can help you reclaim what you’re rightfullly owed.
Every small business owner knows that controlling costs is the key to financial success. Freelancers need to keep an eye on every penny, and when a financial dispute arises, freelancers can’t afford to waste their time hounding a delinquent client.
Recently, small claims courts across the country have increased the dollar limit for disputes, making it increasingly attractive for small business owners to take their grievances before a judge.
Small claims court is a cost-effective means of collecting unpaid bills. The process is attorney-free, and it is designed to be cheaper, simpler, and faster than civil court. Taking a debtor to court is also significantly less expensive than turning the case over to a collection agency.
In many cases, claims are uncontested—the defendant knows they owe the money, and they simply don’t show up to court. And defendants often pay voluntarily, or settle out of court in order to preserve their credit rating.
In order to take a client or a contractor to court, you need to have hard evidence that an agreement has been violated, and that a specific debt is owed by the defendant. Small claims court is not necessarily biased in favor of small business owners, so make sure you have properly prepared your case.
Similar to civil and criminal courts, small claims court has an established statute of limitations. Deadlines vary depending on the nature of the case, but if you believe that you have been wronged, and you want to take a debtor to court, find out how long you have to file a claim before your right to sue expires.
Generally, you will need to file a small claims action in the county where the defendant resides or does business. Alternately, you may be able to file in the county where the contract was signed.
If the defendant doesn’t do business in your state, then you will likely end up filing your claim in the defendant's home state. The costs of pursuing a lawsuit out of state can be daunting, but you always have the option of including filing costs and travel fees in your claim.
On the big day, you will have an opportunity to present your evidence, and the defendant will have a chance to dispute your claim. Then it’s up to the judge to decide. More often than not, the judge will announce his or her verdict immediately. By the end of the day you will know where you stand, and you will be able to get back to business.
After the judge has passed a verdict, wash your hands of the case, and move on. What's past is past. Don't waste another minute worrying about your debtor. Bigger and better things are on the horizon.
Do you have a story about an experience of small claims court? Leave us a detailed comment in the space below, and share it with fellow freelancers now.