In previous posts, we’ve discussed who to collect from and what recourse you have against those who owe you money. If you decide to proceed with legal action to collect your debt, the question is how, exactly, would one do that?
The first place to look for guidance is in the contract documents themselves. Often, the contract will specify where a lawsuit should be filed. Many times, it is in the county where one of the parties to the contract is located, called the venue. If you file in an improper venue, the case will be subject to dismissal. If the contract doesn’t specify the venue, then the general rule is that you sue the person (or company) in the county in which they reside. For venue purposes, companies are deemed to reside in the county where they have their principal office or in the county where they have a registered agent (both of these things can be determined by looking the company up on the Secretary of State’s website).
The contract will also typically specify whether the legal action can be filed in a court, or whether it must be filed as an arbitration. Arbitration is similar to litigation (filing a lawsuit in court), but there are some important differences.
Cost: The up-front filing fee for arbitration is typically higher than the fees associated with filing a court case. The fee is typically based on the dollar amount of the claim. So filing arbitration over a six figure debt will be more expensive than a lesser debt. These initial filing fees can range from $500 to several thousand dollars. Court filing fees also depend on the size of the debt, but are much lower up front. Debts less than $15,000 can be filed in small claims court where the up-front costs are around $100. Debts higher than $15,000 must be filed in a state or superior court where the fees are approximately $250-$300.
Time: Arbitration differs from court in that cases are often more quickly resolved. Arbitration is a private proceeding, meaning the parties themselves pay all the costs, including the arbitrator’s fees. And because arbitrations run independently from the court system, they often run more efficiently and quickly. In the court system, judges handlehundreds of cases while clerks’ offices deal with thousands of cases at a time, so a contested court case will likely take more than a year to resolve. Arbitration should proceed to a hearing in much less time.
Evidence: The rules governing arbitrations are more forgiving than court rules. The court system has many statutes (laws) dictating how trials are to be conducted and what may be presented as evidence. Failure to follow these rules can result in key evidence being excluded. Arbitration is more relaxed, and arbitrators typically consider all relevant evidence, even if it would not otherwise be admissible in a court. For example, in court, a letter from a contractor who wasn’t a party to the lawsuit would not be admissible unless that contractor were present to testify. The arbitrator can consider the letter even without the contractor being present.
Finally, although arbitration is binding for all parties, there are additional procedural steps you need to take in order to collect on any arbitration ruling. Since arbitration is a private proceeding, it doesn’t allow for post-judgment collection proceedings. An additional step of confirming the arbitration award in a court is needed. This is not the same as litigating the case over again, but it does require filing a new lawsuit. For an explanation on the available post-judgment collection methods, stay tuned! We’ll be posting a blog next week on How to Collect Your Judgement.