Litigation to Collect a Past Due Account

by Jennifer Hebert

In this difficult economy, collecting receivables from customers can be challenging. This posting describes some of the litigation basics to collect past due receivables.

Demand Letter
Sending a demand letter from an attorney may spur the delinquent customer into making a payment - or at least spark a negotiation. Under Texas law, sending a demand letter may also (but does not automatically) allow you to collect attorneys' fees in the event you do file a lawsuit to collect the amounts owed (which is similar to the UK requirement to show that the lawsuit was necessary).

Lawsuits
Filing a lawsuit requires a petition prepared by an attorney and filed with the court. Often in collection cases, where the facts are not in dispute, the lawsuit can be a "suit on a sworn account" which may allow parties to dispense with a lengthy discovery process and lead to a speedier result if the debtor does not assert affirmative defenses.

Discovery Process
The discovery process allows the parties to learn more about the facts and the opposing party's case, typically through depositions (questions by the attorney asked of the witness under oath in front of a court reporter), requests for production of documents, requests for admission (written factual assertions that must be either admitted or denied), and interrogatories (written questions that must be answered under oath by the other side). This process is similar to the discovery process in UK litigation, but wider in scope and with the added burden of the deposition procedure.

Summary Judgment
A summary judgment motion is filed when a party believes the facts are not in dispute and, as a matter of law, the party should win. It is often used by creditors in collection cases where the debtor either does not appear in court or fails to state a credible defense.

Trial
If the creditor has not won on summary judgment, he may actually have to prove his case before a judge or jury in a trial. However, the vast majority of cases in Texas are settled prior to trial. The time from filing the lawsuit to judgment often ranges from six months to two years. Though most cases are not appealed, there is generally a two-stage appeal process in Texas, first to the Court of Appeals and thereafter to the Texas Supreme Court.

While courts in the US have a reputation for being slow and proceedings may be expensive as compared to courts in the UK, the collection process can proceed faster than other litigation when the facts are not in dispute. The most difficult part of a collection lawsuit can be collection of a judgment after the lawsuit is won. (This will be the subject of a future posting.) A crucial distinction from the UK system is that the filing of an appeal does not delay enforcement of a judgment unless the debtor posts security for the judgment amount.

The guest editor for this posting was David Laing.  David is Chairman of Ledingham Chalmers LLP, based in Aberdeen, Scotland.  See www.ledinghamchalmers.com.