If someone owes you or your business money such as a supplier, customer, or even an associate or friend it is necessary to take prompt action. Regardless of whether the debtor is disputing the need to pay or claiming to not have the funds, you now have a problem because doing nothing is not an option. Obviously, you cannot simply call the police to report a debtor’s refusal to pay, because debt collection matters are usually civil and not criminal. The responsibility of collecting payment is on you, although the courts will assist if necessary, by handing down a judgment in your favor. But before that happens, often the first step in collecting a debt is to draft a demand letter and send it to the debtor.
What Is A Demand Letter?
A demand letter is written notice to the debtor that includes a formal demand for payment of the debt. A well-crafted demand letter will include the following basic information:
- A description of the amount owed
- How the debt was incurred (e.g. unpaid fees for services rendered)
- The amount of interest or penalties for late payment
- The consequences of not paying (e.g. a lawsuit)
- Reference to the relevant documents such as invoices, contracts or other relevant communications
Although the debtor should already know this information, by including the information in a demand letter, it gives the debtor clear notice that legal remedies to recover the debt may soon follow. Legal remedies include the initiation of a lawsuit, litigation and a money judgment. After a money judgment is entered, enforcement of the judgment is the next step. A demand letter may avoid all of that. A demand letter does not get filed with the court (at least not when you send the demand letter). The purpose is simply to give the debtor one final chance to take the debt seriously and pay up before further steps are taken to recover the balance due.
Do I Have To Send A Demand Letter?
In some instances, such as landlord – tenant matters, Pennsylvania law requires a notice be sent to the debtor before legal action can be taken. If a contract exists, the contract between the parties may also include a provision requiring written notice of default before legal action can be initiated. If Pennsylvania law or the contract terms require a demand letter, then a demand letter must be sent; otherwise, the debtor may be able to successfully challenge a subsequent lawsuit. When a demand letter is not required, it is usually advantageous to send a demand letter in order to put the debtor on notice that continued refusal to pay will have more severe consequences.
Do I Need A Debt Collection Lawyer?
There is no requirement for a debt collection lawyer to prepare and send the demand letter to the debtor; however, it is a good idea to have a lawyer do it.
A lawyer can review the law or the contract to make sure that if a demand letter is necessary, the demand letter will comply with any formal requirements. For example, the contract may require that the demand letter include certain information along with specific mailing requirements (e.g. certified mail – return receipt requested). Failure to strictly comply with the law or the contract terms is often problematic and can lead to further delay in any debt collection efforts
Also, debtors who receive a demand letter on an attorney’s letterhead usually take the letter seriously for fear of what may come next. Debtors usually promptly since attorney involvement usually means litigation is on the horizon. Sometimes, the debtor will respond to the demand letter with payment or a settlement offer. When this happens, the lawyer who sent the demand letter can assist with negotiating the settlement and memorializing the agreement in a written settlement agreement. Having a lawyer can go a long way towards encouraging the debtor to escalate the matter and encourages prompt payment of the debt.
If necessary, a demand letter will lay the groundwork for a lawsuit. When the lawyer sends the demand letter, the lawyer will review the file documents (e.g. contract, emails, and other communications), analyze the legal issues, and determine the best and most efficient course of action. If the lawyer goes through these steps, the lawyer will be familiar with the matter and he or she will be ready to quickly transition the dispute into a formal lawsuit for payment if the debtor still refuses to pay.
What Happens After The Letter Is Sent?
Once the demand letter is sent, the ball will be in the debtor’s court, at least for a time. The ideal situation is that the debtor simply pays the debt promptly. If the debtor does not or cannot pay the debt in full, then your lawyer can help negotiate a reasonable solution. A solution may include an agreement on a discount of the full balance owed in exchange for prompt payment, installment payments for the entire balance, or some other solution. Lawyers can facilitate a settlement and then he or she can prepare a settlement agreement with added protections such as a personal guarantee, confession of judgment, interest and attorney’s fees, or other favorable contract provisions.
Pennsylvania Debt Collection – The Martin Law Firm, P.C.
The Martin Law Firm, P.C. is a debt collection law firm located in Southeastern Pennsylvania. We provide debt collection solutions for individuals and businesses with debt collection matters in Pennsylvania and New Jersey. We also routinely help out of state businesses and law firms domesticate foreign judgments in Pennsylvania and New Jersey.
If you are seeking to collect a debt on behalf of yourself or your business, the debt collection attorneys at The Martin Law Firm, P.C. can help. We pride ourselves on our aggressive action to help our clients with demand letters, settlement agreements, litigation, and asset recovery strategies. Contact our office today for a free case evaluation at 215-646-3980.