If you have a small debt, let’s say something like $50 or $60, but you didn’t pay it, is that something you should worry about? Can a debt collector actually come after you for that? Should you pay it now before a debt collector contacts you? We’re going to answer these questions for you, so keep reading…
Can a debt collector sue me for a small debt?
The short answer? Yes, a debt collector can sue you for a small debt. But depending on the type of debt, the amount of the debt, and the creditor, it’s entirely possible that they won’t sue. A creditor can sue someone who owes them money no matter the amount owed. So even if you owe only a dollar, the creditor can sue you. But whether they will sue you is another matter. In order to file a lawsuit, a creditor must hire an attorney, pay a filing fee, and pay a process server to serve you with a summons. Creditors usually pay debt collection attorneys with contingency fees, meaning the attorney will take a percentage of anything he or she can collect, usually around thirty percent. So if the creditor is chasing $60, is the lawyer really going to do all the work to collect this debt to receive only a $20 fee? That’s very unlikely as the attorney could take a different case and spend his or her time in a way that will make much more money than $20.
On top of that, the creditor would also have to pay a filing fee to file the case in court. Filing fees vary by type of case, state, and amount in controversy. A $60 debt would likely result in a small filing fee, but in some states the filing fee may exceed $60. So it certainly wouldn’t make sense to pay more than $60 in hopes of receiving a judgment for less than that.
Another option creditors have is to file the case in small claims court. Small claims courts are less formal than regular state courts and are typically reserved for cases less than around $10,000 (although that amount varies by state). In small claims court, the parties typically show up for one short “trial” and the judge will decide the winner right then and there. It is much more efficient than regular state courts, but can be unpredictable. If you’re curious how small claims court works, it’s similar to what happens on Judge Judy. The benefit of small claims court is that the attorney time spent on the case is less and the filing fees are usually smaller. Despite this, it would still likely cost more than $60 to take a case to small claims court. So again, it wouldn’t make financial sense to file a lawsuit over such a small debt.
Lastly, in order to proceed with a lawsuit (whether in state court or in small claims court), the creditor, or plaintiff, must serve you with a summons. In order to do that they typically must hire a process server to hand-deliver the summons and complaint. Process servers charge fees for this service. Service fees can exceed $60, and even if they don’t, could seriously cut into the amount recovered.
So if a creditor has to pay an attorney $20, a filing fee of $50, and a service fee of $15, totaling $85, does it make sense to file a lawsuit to collect a $60? Of course not. So it is not likely that a creditor will sue you for a small debt.
But are there situations where debt collectors do sue for small debts?
Although it doesn’t make financial sense for creditors to sue over small debts in most cases, there might be instances where it does make sense. Sometimes a creditor may be willing to lose money on the lawsuit to send a message. They may have a business where many of the customers are not paying because they know the creditor will not sue, so they take their customers to court to let the customers know they cannot get away with not paying.
But the more common scenario is that a creditor will sue for a small debt when they can recover not just the amount of the debt, but also the attorney fees, filing fee, service fee, and interest.
Your state may have a law that allows for recovery of the filing fee and the service fee if a party sues and wins. In that case, the creditor would receive not only a judgment for the original $60 debt, but also the $50 filing fee and the $15 service fee. This would make the judgment $125. A 1/3 attorney fee would then be around $40, possibly making it more worth the attorney’s time.
And if the original contract creating the debt has an attorney fee provision, or your state has a law allowing a winning party to recover attorney fees, the judgment could be even more. If attorney fees are allowed, the attorney will track his or her time and ask for all of those fees to be paid. If the attorney’s normal hourly rate is $300 an hour, and the attorney spends ten hours to collect, there would be attorney fees of $3,000. Add that to our $125 judgment and the $60 debt just turned into a judgment for $3,125. If the underlying contract for the debt or state statute allows for recovery of interest, the final judgment could be even more.
Should I pay the debt now?
Given the scenario above, it might make sense to pay the $60 debt now and avoid the possibility of a judgment worth thousands of dollars. You could certainly save money by paying the $60 debt rather than waiting until the creditor obtains a judgment for thousands of dollars. Many people are inclined to wait until the debt collector sues and then decide to pay the debt. But once the creditor incurs the attorney fees, filing fee, and service fee, they probably don’t have the incentive to take only the original $60. They will want to recoup those other fees. So if you wait until the creditor sues, the window to pay off the original amount of the debt may have closed, unless you are able to successfully win and defend the lawsuit.
Of course, you can always roll the dice and hope that the creditor won’t take you to court. If you get beyond the statute of limitations on a debt (that will differ by state), then you can feel secure knowing that you won’t have to pay the debt. The decision on whether to pay the debt or not can hinge on whether you think the creditor will sue you or not. Part of your calculation should be whether there is a basis for the creditor to request attorney fees, interest and filing and service fees as part of the judgment.
What should I do if the debt collector does sue me?
If a creditor does file a lawsuit then you need to make sure to respond and defend. If you fail to respond and defend the court can enter a default judgment against you. If that happens there is a high likelihood that the judge will add attorney fees and other costs to the judgment. If a creditor sues for a small debt they are very much hoping you don’t respond and they can recover their costs.
The other thing you should do is open up negotiations with the creditor. This is especially a good strategy if the creditor is requesting attorney fees. Although the creditor may not be willing to settle for the original amount of the debt after filing, it is still better to settle early in the case rather than later. That is because the longer the case goes, the more time the attorney spends on the case, increasing the total amount of attorney fees the creditor can obtain. And while the attorney may want the case to take longer so they can earn a bigger fee, the creditor ultimately doesn’t care about that. The creditor only cares that they are not the one who pays the attorney fee. So if you can settle early in the case, you should.
So what are the takeaways?
Ultimately, if you have a small debt, you need to analyze your situation and determine if you think the creditor is going to sue you for the debt. You should take into account the amount of the debt, the creditor’s situation, and whether the underlying contract or state law allows for recovery of attorney fees, filing fees and services fees, as well as interest.
If you determine a creditor is unlikely to sue, you can probably get away with not paying the debt. But make sure to monitor the statute of limitations.
If you determine a creditor may sue, you should probably contact the creditor about payment or settlement before the creditor files suit. This will avoid you having to pay any additional fees, costs or interest later.
If a creditor does sue you for a small debt, you should make sure to respond and defend. You should also begin settlement negotiations early in the case in order to avoid a judgment with much higher fees.
If you do get sued for a debt and need forms to respond, check out our forms package here.
If you want to learn how to defend yourself in court, sign up for a 1:1 course with me. During the course you will learn how to defend yourself against debt collectors in court, including what forms to file and when. You’ll also learn negotiation techniques that will help you settle your debt for a fair amount. To sign up, send us an email at contact@debtbrief.com.
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