Nexa Collections

Suing for Unpaid Bills: The Legal Process, Costs & When to Walk Away

legal collections

The “Nuclear Option”: Why You Should Hesitate Before You Sue

Filing a lawsuit feels like taking control. You are angry, you are right, and you want justice. But in the world of debt collection, justice is expensive.

Before you pay a retainer to an attorney, you must understand that the court system is not designed to be your accounts receivable department. It is slow, unpredictable, and often favors the debtor.

The 3 Biggest Disadvantages of Legal Action

If you ask a lawyer, they might say “you have a strong case.” If you ask a CFO, they will ask you to look at these three risks:

1. The “Sunk Cost” Trap (Good Money After Bad)

Litigation is “front-loaded.” You must pay filing fees ($200-$500), process server fees ($100+), and attorney retainers ($2,000+) upfront.

  • The Risk: If you sue for $10,000 and spend $4,000 to win, you have only recovered $6,000—and that is only if the debtor actually pays.

  • The Reality: If the debtor files for Bankruptcy Chapter 7 the day before the trial, your lawsuit dies instantly, and your $4,000 in legal fees is gone forever.

2. The Public Record (Reputation Damage)

Lawsuits are public records.

  • The Risk: Future clients or partners can see that you are litigious. If you are a contractor or a service provider, getting a reputation for “suing your customers” can hurt your sales pipeline more than the bad debt itself.

  • The Time Sink: You will lose dozens of hours gathering evidence, sitting in depositions, and waiting in hallways at the courthouse. Your time is worth money—factor that into the cost.

3. The Judgment is Just Paper

Winning a lawsuit does not mean a check magically appears in your mailbox.

  • The Risk: A court Judgment gives you the right to collect, but it doesn’t force the money out of their pocket. You still have to pay more money to the Sheriff to garnish wages or levy bank accounts. If the debtor works “under the table” or changes banks, your judgment is a worthless piece of paper suitable for framing.

WARNING: The “Counter-Suit” Boomerang

This is the danger most business owners ignore until it is too late. When you sue a debtor, you are handing them a weapon.

To defend themselves, a debtor’s attorney will look for any reason to file a Counter-Claim against you. Suddenly, you aren’t just fighting to get paid $5,000; you are fighting to defend yourself against a $50,000 lawsuit.

Common Counter-Suit Triggers:

  • Breach of Contract: “I didn’t pay because the work was defective/late/incomplete.” Now the court has to inspect your work, dragging the case on for months.

  • FDCPA Violations: If you (or your staff) called them too many times, called their workplace, or threatened them, they can sue you under the Fair Debt Collection Practices Act.

  • Defamation: Did you tell a vendor or neighbor that this person “doesn’t pay their bills”? That could be grounds for a defamation counter-suit.

Insider Advice: Never rush into a lawsuit out of anger. If your internal documentation isn’t perfect, a counter-suit could bankrupt you. Consider hiring a collection agency before you jump to an attorney to sue your debtor. 

The 9 Steps of a Debt Lawsuit (The Realistic Version)

If you have weighed the risks and determined the debtor has assets (Real Estate, W-2 Income) worth seizing, here is the roadmap:

1. The Final Demand (The “Shot Across the Bow”)

Send a formal “Notice of Intent to Sue” via Certified Mail.

  • Reality: This letter often works better than the lawsuit itself. It shows you are serious.

2. Filing the Complaint

You file the paperwork with the court clerk.

  • Reality: If you are an LLC or Corporation, most states require you to hire a lawyer. You typically cannot represent yourself in higher courts.

3. Service of Process

A Sheriff or Process Server hands the papers to the debtor.

  • Reality: Professional debtors know how to “dodge service.” If you can’t find them to hand them the paper, the lawsuit stops dead.

4. The Answer Period

The debtor has 20-30 days to respond.

  • Reality: Most ignore it. If they do, you win by default. If they file an “Answer” denying the debt, get ready to write another check to your lawyer.

5. Discovery & Depositions

Both sides trade emails, texts, and documents.

  • Reality: This is the expensive part. Lawyers charge hourly to read your emails.

6. Mediation (Mandatory in many states)

The judge may force you to sit in a room and try to settle before letting you go to trial.

  • Reality: You often end up settling for 60% of the debt just to make the legal fees stop.

7. Trial

You present your case to a Judge (or Jury).

  • Reality: Bench trials (judge only) are faster. Jury trials are unpredictable and expensive.

8. Judgment

You win! The court says they owe you money plus interest.

9. Enforcement (The Hard Part)

Now the hunt begins.

  • Bank Levy: You freeze their checking account. (Only works if you know where they bank).

  • Wage Garnishment: You take 25% of their net pay. (Only works if they have a steady W-2 job).

  • Property Lien: You put a cloud on their home title. (You only get paid when they sell the house).

The Bottom Line: Calculation

Do not sue if:

  • The debt is under $2,500 (Small claims fees will eat the profit).

  • The debtor is unemployed, self-employed, or “Judgment Proof.”

  • Your own paperwork (contracts/change orders) is messy or unsigned.

Consider a Collection Agency if:

  • You want to avoid legal fees (Agencies work on contingency—no win, no fee).

  • You want to preserve your reputation.

  • You want to report the debt to Credit Bureaus rather than a court docket.

Litigation is a tool, not a guarantee.