The most common mistake people make when being sued by a debt collector is not taking into account the possibility of having to pay attorney fees. This post will teach you what attorney fees are, when you might be liable for attorney fees, how attorney fees can affect a debt collection case, and how to handle your case if a debt collector has a claim for attorney fees against you.
What are attorney fees?
Attorney fees, in the context of debt collection cases, are fees that the debt collection attorney incurs for which the debtor is liable if the debt collector wins the case. Obviously, an attorney makes money by charging his or her client for his time. Debt collection attorneys don’t always get paid that way, though. Usually, debt collection attorneys make money when they actually collect on a debt, then as their fee they take a percentage of what they collected. For example, if the debt collection attorney agrees to take a fee of 33 percent of everything collected, and the attorney collects a $300 debt, the attorney’s fee is $100.
Debt collection cases are not the most profitable type of case for attorneys. That’s why you don’t see billboards for lawyers offering their services to collect debts. Debt collection attorneys don’t win every case. Sometimes they don’t have enough prove. Or they might not be able to locate the debtor. Sometimes they can obtain a judgment but the debtor has no money or assets on which the attorney can actually collect. So attorneys find ways to make up for the cases on which they don’t collect.
One common method they use is to have their clients insert attorney fee provisions into their contracts. Their clients like these provisions as well because it can save them money. Instead of having to pay the attorney out of the collected amount, attorney fee provisions require the debtor to pay the attorney’s fee, so the client can keep the full collected amount. Attorney fee provisions will usually state that if the person enters into the contract but fails to uphold their end of the deal, the judge can order the party who breached the contract to pay the fees for the attorney of the winning party.
For example, when you take out a payday loan or get a new credit card, you sign a contract. In that contract, buried in the fine print, is probably a paragraph that states that if you don’t pay back the loan, or make the payments on the credit card, the payday loan company or credit card company can sue you and ask the judge to award attorney fees. This would mean that the attorney for the payday loan company or credit card company would track their time, and tell the judge to make you pay their normal hourly rate.
When Might You Be Liable for Attorney Fees
If you want to figure out if you are liable for attorney fees in your debt collection case, you need to start by reading your contract with the original creditor. Every state has different laws when it comes to attorney fees, but commonly, attorney fees can only be awarded in two circumstances: when the contract includes an attorney fee provision, and when attorney fees are allowed by state statute.
We’ve already mentioned how contracts allow for attorney fees. The other circumstance – state statute – is when the state legislature passes a law that allows a court to award attorney fees in certain circumstances.
You should be able to easily tell when you may be liable for attorney fees by reading the original contract. These provisions are usually toward the end of the agreement, and will state when you must pay attorney fees. As for figuring out if you might owe statutory attorney fees, that will take a little bit of research. You’ll want to check your state’s statutes for attorney fee requirements, specifically in debt collection cases. Most state statutes can be easily and quickly searched in Google.
How Do Attorney Fees Affect Debt Collection Cases
If a debt collector files suit, you need to quickly assess whether they have a claim for attorney fees against you. The problem with attorney fees is that they can drastically and quickly increase the amount of the debt. For example, if you owe $5,000, by the time you learn of the lawsuit, that debt has probably already increased $1,000 or more. That’s because the attorney had to take time to review the file, talk to the client, draft the complaint and summons, and send the summons out for service. If you file an answer to the summons and complaint, the attorney will take time to review it. And for every task the attorney completes, he or she will track the time for that task. It’s not uncommon for attorneys to charge somewhere between $250 and $500 per hour for these tasks. This means that you no longer owe $5,000. You owe $6,000 or possibly more.
The even bigger problem is that the longer the case goes, the more time the attorney will spend, and the more the debt will be. You may think that you can fight the debt collector but by doing so, you may have unwittingly increased the amount you owe. That’s why you need to assess the impact of attorney fees early in the case so you can limit the damage those fees can do to you.
How to Handle Your Case if the Debt Collector Makes a Claim for Attorney Fees
If you determine that you may owe attorney fees you should evaluate your chances of winning the case against what the final judgment amount could be. If you have good proof that you don’t owe the debt, you may be more willing to fight the case, because if you win the judge will not order you to pay the attorney fees. But if you know you owe the debt, don’t have good defenses, and the debt collector seems intent on pushing forward with the case, you need to consider settling the case.
Many people, when realizing they may owe attorney fees, will try and settle with the debt collector for the original amount of the debt. But once the attorney racks up a fee, debt collectors often won’t settle for the amount of the original debt. They know they have you for more than what you could have paid before they filed suit. But your best option is still to negotiate and try to settle the case.
There are no rules about how to settle a case. Whatever you and the debt collector can agree upon will get it done. You may try to settle for the full debt without attorney fees. Or you may try to get on a payment plan. Or you may pay a lump sum up front with smaller monthly payments. Whatever you do, make sure you can make the payments on which you agree. Once you have a deal with the debt collector, get it in writing and ask the judge to dismiss the case.
Attorney fees can make a straightforward debt collection case difficult to resolve, especially if a debtor doesn’t realize they may owe attorney fees or doesn’t understand the impact of those fees. Now that you know about attorney fees, you can assess whether you may owe them for your debt, and decide how you want to handle the defense of your own case if you do.
If you need help learning how to negotiate with debt collectors, I teach a course on how to negotiate with debt collectors. Just send an email to contact@debtbrief.com for more information.
If a debt collector has sued you and you need forms to respond, we sell a set of ten necessary forms for a debt collection defense. You can find them HERE.
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