Business Collection Attorney: 6 Questions About Fees, Timing, and Who Can Be Sued

Hiring a business collection attorney is a bet on the debtor, not on the lawyer. A skilled lawyer can turn an unpaid invoice into a judgment with some reliability; no lawyer can turn a judgment against an empty company into money, and the fee arrangement a creditor signs should reflect which of those two outcomes is more likely in its file.

The six questions below are the ones a creditor should put to any business collection lawyer before signing, whether the search began with "near me" or with a referral. The answers use New York's rules as the working example; other states adopt their own versions, and the engagement letter should say which state's rules govern.

1. The Fee Can Be Contingent, but the Expenses Usually Are Not

Collection work is one of the natural homes of the contingent fee, and New York's Rule 1.5(c) permits a fee "contingent on the outcome of the matter" outside the few areas where it is prohibited. The rule then says what the writing must contain: "the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal; litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or ... after the contingent fee is calculated." It must also tell the client about expenses owed "regardless of whether the client is the prevailing party."

That last clause is the one creditors skip. Filing fees, service of process, sheriff's fees and the cost of locating assets can be owed even when nothing is collected, and the percentage, whatever it is, applies only to money that arrives.

Under 22 NYCRR 1215.1 the engagement must be in writing in New York, explaining scope, fees, expenses and billing practices, with exceptions that include matters where the fee is expected to be less than $3,000 and repeat work of the same general kind for the same client. A creditor with a small claim and no letter should ask for one anyway.

This page names no percentages. None would be accurate across lawyers, amounts and states.

2. Collectability Is the Question That Should Come Before the Complaint

A competent collection lawyer will ask about the debtor before asking about the debt. Does it still operate, does it bank where the creditor has seen its checks clear, does it own real estate, did an owner sign a guaranty, has it stopped answering because it is insolvent or because it disputes the work. Those questions are phrased here as a list the lawyer works through, and a creditor who can answer them before the first meeting has already done part of the lawyer's job.

The arithmetic of a judgment can look generous. New York's statutory rate under CPLR 5004 is nine percent a year unless another statute provides otherwise, CPLR 5001 runs interest on a contract breach from the earliest ascertainable date the claim existed, and a money judgment is presumed paid only after twenty years under CPLR 211(b). A judgment against a company with nothing, though, accrues interest the way an unopened letter accrues postage: in theory, and to no one's benefit (and the twenty-year presumption, which sounds like patience rewarded, mostly measures how long a creditor may keep a file open against a debtor that may never again have an account worth restraining, a figure that says more about the statute's drafters than about the odds of recovery).

The honest version of a collectability review sometimes ends with advice not to sue.

A lawyer who says that has earned the next engagement, and a lawyer who files without asking has at least told the creditor something about how the fee is structured. The analysis is not permanent either. A debtor with nothing this year may have a new operating account next year, and a docketed judgment waits for it, though whether it waits long enough is a question the file cannot answer at the start.

3. The Contract May Already Have Chosen the Court

Where the suit can be filed is often decided before the dispute, in a clause few creditors reread. New York gives large contracts a special rule. Under General Obligations Law 5-1402, a party may sue a foreign corporation or nonresident in New York's courts where the contract chose New York law under section 5-1401, contains the other party's agreement to submit to New York jurisdiction, and covers a transaction of not less than one million dollars in the aggregate. The statute says nothing to disturb forum clauses in smaller contracts, which are enforced on their own terms.

Without a clause, jurisdiction over an out-of-state debtor turns on its contacts. CPLR 302(a)(1) lets New York courts reach a non-domiciliary who "transacts any business within the state or contracts anywhere to supply goods or services in the state," as to claims arising from those acts. A lawyer admitted where the case will be heard is the practical answer to "near me," and that place is set by the contract and the debtor, not by the creditor's office.

4. Timing Is Set by Deadlines on Both Sides

The creditor's own deadline comes first: six years for most contract claims under CPLR 213, and four years from breach for sale-of-goods contracts under UCC 2-725. After service, a New York defendant has twenty or thirty days to appear under CPLR 320(a), depending on how it was served, and a default on a sum certain can go to the clerk within one year under CPLR 3215(a). After judgment, a restraining notice holds for one year and a levy lapses after ninety days as to anything not yet turned over.

5. The Defendants Can Include People Who Never Issued an Invoice

The company is the obvious defendant and sometimes the least useful one. A guarantor can be sued on the guaranty. A buyer of the company's assets can be reached only through the narrow successor exceptions New York recognized in Schumacher v. Richards Shear Co., and an owner only on the showing of domination used to commit a wrong that Morris requires. Recipients of transfers the debtor made to hinder creditors can be sued under the Debtor and Creditor Law, within its time limits. Each added defendant adds cost (a creditor who names everyone the debtor ever paid will fund a great deal of motion practice), and there are cases where it is worth it, though fewer than the frustration of an unpaid invoice suggests.

6. A Judgment That Must Travel Needs Its Own Filing

A New York judgment against a Florida company is recorded in Florida under that state's enforcement statute before Florida levies can issue, and Florida's clerk must mail notice to the debtor, with no execution for 30 days after mailing. The reverse direction has a trap. New York's shortcut filing under CPLR article 54 excludes a judgment "obtained by default in appearance or by confession of judgment," so an out-of-state default judgment against a debtor with assets in New York needs a different route.

The cheapest judgment to obtain can be the costliest one to move.

The Other Side of the Engagement Letter

A creditor needs a collection attorney, and Delancey Street is not one: it negotiates for debtors, holds no law license, is therefore not a law firm, and does not sue, collect, or enforce judgments for anyone. Where it fits is the creditor's own debt. A business carrying a merchant cash advance while waiting on a large receivable can have Delancey Street review that advance free and in confidence, with legal questions going to independently licensed counsel. The lawsuit against the customer and the negotiation over the advance run on separate clocks, and neither waits for the other.