The Bad Debt Collection Process

Demand Letter.  We start the ball rolling with a letter to the debtor demanding payment.  Even though you may have already written many letters yourself, we have found it effective to follow up with just one more.  This demand letter is essential for a few reasons:  (1) it is important (not to mention kind on your part) to give the defaulter one last chance (our experience is that about 15% to 20% of the debtors will attempt to resolve the problem once they see an attorney has been retained);  (2) there are rules under the Texas Civil Practice and Remedies Code that govern the award of attorney's fees that this letter satisfies; and (3) the letter articulates to the debtor that you are serious about the collection of your just claim.

Plaintiff's Original Petition.  We usually file the petition within 30 days of the date of the Demand Letter.  The purpose of the Petition is to alert the court of the situation and formally demand the payment of all default accounts by the debtor.  In many cases, the Petition is filed within 10 days of the Demand Letter. For invoices and promissory notes we always file a special type of Petition known as a "Suit on Account."  This type of Petition requires the Plaintiff to swear that the account is, among other things, true, correct, due and unpaid, and requires the Defendant to answer the Petition by swearing that the account is not due.  If the Defendant does not file a proper answer, then the Plaintiff can be deemed by the Court to have made out a prima fascia case and the Court is likely to enter a judgment in the matter.  We always include the first round of discovery with the Petition.

Motion For Default Judgment.  Upon service of the Petition, the the debtor has until 10:00 a.m. of  the next Monday after the expiration of twenty days to answer the Petition in writing.  If they fail to file such an answer, then we can motion for a default judgment.  The Court reviews the motion, usually grants the motion without change and enters judgment in the Plaintiff's favor.  It is important to note that the Defendant is unaware you have asked the Court for judgment in this case.

Motion for Summary Judgment.  If, however, the Defendant files an answer, we usually respond with a motion for summary judgment.  This motion is predicated on an affidavit from you that the account is due.   The burden of proof then shifts to the debtor and they are obligated to clarify for the Judge any discrepancies with our claim(s).  In most cases the Defendant cannot defend themselves and the Court awards a judgment in your favor.  Note:  if the Defendant can defend themselves at this point by showing the Judge that there are particular areas of the invoices that have been paid, then this is not a routine collection case and we need to carefully examine the circumstances surrounding the invoices to be certain everything is "in order." 

I have a Judgment, now what? After obtaining a Judgment, we will initiate the actual collection portion of the collection process.

What if the defendant has filed a written answer to the lawsuit and our motion for summary judgment is denied?  More than likely, the debtor has presented a plausible defense against your claim.  While it is probably very shaky, the defense gives cause for us to reexamine our strategy.  It makes no sense to treat a case collecting $3,000.00 like a case that is collecting $300,000.00.  No two cases are the same and should be treated differently.  We usually force cases that have been denied a summary judgment to trial, often before a judge, and as soon as possible.