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What to Do, Settle or Sue?

Although every experienced collector follows the mantra, “Payment in Full,” the reality is that most claims end up in a settlement accompanied by monthly installments. To what extent a settlement should be accepted is as wide and variable as the unique circumstances surrounding a particular claim.

Over one year ago, I was talking with an associate of mine who received a claim for approximately $500,000 against a company that had been in business for decades. Unfortunately, the company had made a few investment decisions that had some devasting financial results and was trying very hard to get back on its feet.

Initially the debtor agreed to pay $50,000 per month for ten months, which at first blush was not unreasonable. However, when the first couple of payments didn’t arrive, the amount and schedule were renegotiated down to $25,000 per month and extended for 20 months. Regretfully, that was further negotiated down to $15,000 per month for about 34 months.

Now, I know what you may be thinking. That was way too long to for this claim, and it would have been probably better to either try and make a substantial settlement or sue the account. But like I said before, whether making this kind of deal is good or bad all depends on the unique circumstances surrounding the claim. Here’s a quick list of considerations on whether to settle or sue.

Settling
  • There is always the possibility that an extended payment schedule will actually give the debtor the breathing room to stay in business and fulfill the obligation.
  • Extended payment schedules with large monthly payments are still cost effective to process.
  • Depending on the State, litigation could take years and the outcome might actually end up being more or less the same.
  • Some multi-year payment plans have been crafted to include larger payment amounts in the beginning and smaller amounts over time as a way of trying to get more money in more quickly.
Suing
  • There is always the possibility that an extended payment schedule will end up only prolonging the time for the inevitable insolvency of the debtor.
  • Suing earlier and aggressively before other creditors do, may increase the chances of getting paid.
  • Litigation may help to flush out the truth regarding the debtor’s financial situation – divulging more assets for liquidation than previously known.
Fast forward to a few weeks ago, and my associate was telling me that the debtor is still paying on this claim. Did they make the right decision? Your thoughts are most welcome.

Thomas W. Hamilton
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