Posted on February 27, 2024 in Business Law

Debt collection is a critical issue for many businesses, as unpaid debts can significantly impact a company’s cash flow and its overall financial health. While many businesses prefer to resolve debt collection issues out of court through negotiations or payment plans, there are some cases where litigation may be necessary. Filing a lawsuit or enforcing a judgment can be a complex process, but it can ensure that the financial interests of a business will be protected.

Understanding when to transition from standard collection efforts to legal action can help businesses protect their interests and improve their chances of recovering outstanding debts. An attorney who has experience representing businesses in these types of cases can provide guidance on the best steps to take, and they can ensure that the proper procedures will be followed to collect debts as efficiently as possible.

Determining When Litigation May Be Necessary

Litigation should generally be considered a last resort due to the potential costs and the amount of time required to complete a case successfully. Situations where it may be necessary to take legal action include:

  • Repeated failure to pay: If a debtor consistently ignores payment requests or fails to adhere to agreed-upon payment plans, litigation may be the only option left to enforce payment.
  • Significant debt amounts: For substantial debts, the potential recovery may justify the expenses of litigation. Businesses must assess the costs and benefits of pursuing legal action.
  • Debtor’s refusal to communicate: If a debtor does not answer queries, does not respond to payment requests, or refuses to speak to a creditor, litigation might be necessary to compel payment.
  • Asset protection measures by the debtor: If there is any indication that a debtor is moving assets to avoid payment, such as by transferring money to accounts or trusts in other countries, legal intervention can help prevent this and ensure that assets will be safeguarded for potential recovery.

The Impact of Litigation on Debt Collection

Litigation can significantly impact the debt collection process. Some benefits that it may provide include:

  • Increased leverage: The threat or initiation of legal action will often motivate debtors to settle their debts to avoid court costs and potential judgments against them.
  • Asset discovery: Through the litigation process, businesses can obtain court orders to review a debtor’s finances, revealing assets that can be used to satisfy the debt.
  • Creating a public record: Legal proceedings are a matter of public record, which may incentivize some debtors to settle quickly to avoid public association with financial troubles.

Protecting Business Interests

Before proceeding with litigation, businesses will want to make sure all legal financial concerns related to a case will be addressed correctly. They can take several steps to protect their interests, including:

  • Documentation: A business should keep detailed records of all transactions, communications, and attempts to collect the debt. This documentation will be crucial if the case goes to court.
  • Legal consultation: An attorney with experience in debt collection and litigation can help determine the best legal options for recovering the debts that are owed. They can also help a business understand the likelihood of a successful outcome.
  • Cost analysis: It is important to assess the expenses involved in litigation, including attorney fees and court costs. These costs can be weighted against the amount of the debt and the debtor’s ability to pay. This will help ensure that litigation is financially justified.

Contact Our Milwaukee Business Litigation Attorneys

At Gimbel, Reilly, Guerin & Brown, LLP, our experienced Milwaukee, WI business litigation lawyers understand the complexities of debt collection, and we can help businesses navigate the legal process effectively. We are committed to protecting our clients’ business interests and maximizing their chances of recovering outstanding debts. To arrange a consultation and learn more about our legal services, contact us at 414-271-1440.