HOST: If someone owes you money, how do you go about collecting? Well, there are some right ways and some wrong ways, as John Patrick Dolan tells us in this week's LawTalk.
JOHN DOLAN (Legal Consultant): Well, you need to collect the debt. And so the question is how do you collect the debt and what's appropriate? The federal government passed a law called the Fair Debt Collection Practices Act, and what it basically says is you need to collect your debts in an appropriate fashion. So you don't want to call people at 3 AM, and you don't want to send Vito the leg-breaker to beat down their front door, and you don't want to call and abuse people at their workplace. And if you do, you could be in trouble.
Let's say you have somebody that owes you $500, and so you decide that you're going to figure out a way to get them to pay, because maybe, as a small-business person, this is the profit that you make in this transaction. You're allowed to contact them and see if you can get them to pay, under reasonable circumstances, during regular business hours at work--unless they say, `Please don't contact me at work anymore'--at home, through correspondence, etc. The federal Fair Debt Collection Practices Act, however, says if you abuse your ability to collect your debts--that is, if you do things that are really rude, abusive, inappropriate--you can be liable up to $1,000 for any particular debt. And recently a case came down that said this: It's not just $1,000 on your hypothetical $500 debt, but it's $1,000 every time you do something rude and abusive, like three phone calls at 3 AM, four knocks on the door from bad guys, and three other abusive acts adds up to 10 acts, you could be liable for $10,000 to this person.
HOST: OK. I don't want to abuse them, but how do I get my money?
JOHN DOLAN: Well, I would say the simple thing to do, first of all, is to correspond in the beginning. After you correspond, there are a number of reputable collection agencies where you could send out a bad debt--and, of course, when you engage an agency like this, make sure that they're familiar with the Fair Debt Collection Practices Act--and you might even, by the way, put together in your relationship--contractual relationship with this debt collection agency an agreement that if they act beyond the scope of your engaging them--that is, if they do some things that are inappropriate--that you are going to be held harmless, and that they will take full liability for this.
And then after this, you end up in litigation. We try and avoid litigation wherever possible, but sometimes it's the only alternative.
HOST: But then we've got to get lawyers involved, and we definitely don't want to do that, right, John?
JOHN DOLAN: Lawyers are expensive. Sometimes you need us.
Legal expert John Dolan has given us some of the dos and don'ts about debt collection. Here is another step we can take if someone owes us money and doesn't pay.
JOHN DOLAN: There's a big trend in America--and I think small-business people can take advantage of this trend--it's called alternative dispute resolution. And how it works is, you put together in your contract or agreement with yourself and your customer of client a clause that says, `If we have a disagreement, if we have a dispute over payment, we both agree that we would use an alternative dispute resolution mechanism rather than going directly to court. It might be a neighborhood justice center, it could be an arbitrator agreed upon by both of us.'
The advantage to this is, you can continue to do business, especially with good customers, while you have a dispute resolved outside of your regular business channels. And that way, you don't ruin the relationship. When you're talking about a small business and you're talking about debts, you know, $500, $700, $1,000, lawyers' fees eat up so much that it almost becomes irrelevant to go to a lawyer. And so for everybody's protection, the trend is--and I encourage small-business people to include in their agreements--an alternative dispute resolution clause so they can go outside of the legal system but outside of their personal relationship to get a problem resolved. You don't have to lose your business relationship in order to resolve a dispute that you have.