Alternatives to Court
Try to Compromise
A lawsuit should be your last resort. Before you sue, talk with your opponent and try to negotiate a mutually beneficial compromise.
Litigation should be a last resort. In addition to devouring time, money and energy, lawsuits -- even the small claims variety -- tend to polarize disagreements into win-all/lose-all propositions where mutually beneficial compromise is difficult.
Before filing a lawsuit, it almost always makes sense to look for a solution out of court. This is particularly true in situations where the other party is someone you'll have to deal with in the future. Typically, this would include a neighbor, a former friend, a relative or a good customer. For example, an orthodontist who depends on referrals for most new customers will want to think twice before suing a patient who has refused to pay a bill in a situation where the patient is genuinely upset (whether rightly or wrongly) about the services she has received. Even if the orthodontist wins in court, he is likely to turn the former patient into a vocal enemy -- one who may literally badmouth him from one end of town to the other.
Start by attempting to negotiate a compromise with the other party. Before you reach for pen and paper, try to negotiate directly with the person, preferably in person or, if need be, by phone.
To arrive at a compromise offer, consider how much it's worth to you to eliminate the time and aggravation of going to court. One good approach is to put a dollar value on an hour of your time and then multiply by the number of hours you estimate going to court will take. Also, based on the facts of your case, take into consideration the chances that you might lose, or get less than you ask for. For example, in a recent study of 996 small claims cases that actually went to trial, only 32% resulted in the plaintiff receiving 100% of the amount claimed; 22% resulted in the plaintiff getting between 50% and 100% of the amount claimed; 20% resulted in the plaintiff getting less than half; and in 26% of the cases, the plaintiff got nothing at all. "Small Claims and Traffic Courts"; by John Goerdt (National Center for State Courts).) It's important to know that any offer of compromise, made either orally or in writing, does not legally bind you to sue for that amount if the compromise is not accepted. Thus, you could make an oral or written demand for $5,000, then offer to compromise for $9,750 and, if your compromise offer is turned down, still sue for $10,000.
In an effort to help you arrive at a good compromise, here are a few personal dispute resolution rules, which, of course, you can modify to fit your circumstances:
If you are the potential plaintiff, start by offering to shave about 20% off your original demand, in exchange for a settlement. Any less and you won't be taken seriously. Any more and you're giving away too much too soon.
If you are the potential defendant and conclude that the plaintiff probably does have a decent case, start by offering about 50% of what is demanded. This should be enough to start negotiations. Many plaintiffs will ultimately agree to knock as much as one-third off their original demand to save the time and trouble of going to court.
Money isn't always at the root of the problem. If you pay close attention to the other party's concerns, you may find that the key to arriving at an agreement can be found elsewhere. For example, a print shop might agree to refund a customer $2,000 on a disputed job in exchange for an agreement to continue to work together and speak well of each other in the future.
The patient negotiator has the edge. Many Americans are in a hurry to arrive at a solution and, in their haste, will concede too much. Take your time. If the other person gets mad and hangs up, you can always wait a few days and call back.
Good negotiators rarely change their position quickly, even if the other side does. Instead, they raise or lower their offer in small increments. For example, if you are the plaintiff and your opponent counters your offer of a 20% reduction in your demand with an offer to pay only half of what you're asking for, you'll do best by not jumping to accept, but instead countering by reducing your original demand by 30% or 35%. If you do, there is a decent chance that your opponent will further improve her offer. And even if she doesn't, you haven't lost anything, since once she has made an offer, she is unlikely to withdraw it.
Sign a written agreement pronto. If you talk things out with your opponent, write down your agreement as soon as possible. Oral settlement agreements, especially between people who have small confidence in one another, are often not worth the breath used to express them. And writing down an agreement gives each party a chance to see if they really have arrived at a complete understanding.
Demand Payment Before You Sue
Settling your dispute may be easier than you think.
Before going to court it's wise to write the other party a clear, concise letter demanding payment. That a simple letter can result in the other side paying what you ask or agreeing to acceptable compromise may seem almost too good to be true, especially if you have unsuccessfully argued with your adversary in person or over the phone. But the good news is demand letters resolve as many as one third of all potential small claims disputes, probably because in the legal context the written word is far more powerful than speech.
To see why, think about the times you have found yourself embroiled in a heated consumer spat. After angry words were exchanged -- maybe even including your threat of a lawsuit -- what happened next? Often, nothing. For all sorts of reasons, from a death in the family to the chance to take a vacation, to simply not having enough time, you -- or the other party -- didn't pursue the claim.
Recognizing that it's human nature not to litigate every dispute, many people who know they owe you money expect -- or at least hope -- you won't pursue them. But things often change if you write a firm demand letter, laying out the reasons why the other party owes you money and stating that if you fail to get satisfaction, you plan to go to small claims court pronto. Now, instead of being just another cranky face on the other side of the counter or a voice on the phone, you and your dispute take on a sobering realness.
For the first time, the other party must confront the likelihood that you won't simply go away, but plan to have your day in court. And they must face the fact that they will have to expend time and energy to publicly defend their position. If your position has at least some merit, the chances that the other party will be willing to pay at least a portion of what you ask just went way up.
Here are some pointers to keep in mind when writing a Letter of Demand.
Start by quickly reviewing the history of the dispute. At first this may seem a bit odd; after all, your opponent knows the story. But remember if you end up in court, the letter can usually be presented to the judge, who doesn't know the facts of your dispute.
Be polite. You catch more flies with honey than by hitting them over the head with a mallet. Absolutely avoid personally attacking your adversary (even one who deserves it). The more disparaging you are, the more you invite the other person to respond in a similarly angry vein. You want the other person to instead adopt a business-like analysis: what are my risks of losing, how much time will a defense take, do I want the dispute to be made public? Hopefully, the other party will decide it makes sense to compromise.
Use a computer or typewriter and keep a copy.
Make it clear exactly what resolution of the problem you want. For example, ask for a specific amount of money to be paid by a set date, or for the other person to do something, such as fix a botched home repair job.
Conclude by stating that you will file in small claims court if your demand is not met.
Sample Letter of Demand
1111 Grand Ave.
Waukegan, IL 60085
Dear Mr. Tinker,
On May 21, 20xx, I took my car to your garage for servicing. Shortly after picking it up the next day, the engine caught fire because of your failure to properly tighten the fuel line to the fuel injector. Fortunately, I was able to douse the fire without injury.
As a direct result of the fire, I paid the XYZ garage $680.83 for necessary repair work. I enclose a copy of their invoice.
In addition, as a direct result of the fire, I was without the use of my car for three days and had to rent a car to get to work. I enclose an invoice for the rental cost of $165.
In a recent phone conversation you claimed that the fire wasn't the result of your negligence and would have happened anyway. And even if it was your fault, I should have brought my car back to your garage so you could have fixed it at a lower cost.
As to the first issue, Bob Smith of the XYZ Garage is prepared to testify in court that the fire occurred because the fuel line was not properly connected to the fuel injector.
Second, I had no obligation to return the car to you for further repair. I had the damage you caused repaired at a commercially reasonable price and am prepared to prove this with several higher estimates by other garages.
Please send me a check or money order for $845.83 on or before July 31. If I don't receive payment by that date, I'll promptly file this case in small claims court.
You may reach me during the day at 555-1234 or in the evenings until 10 p.m. at 555-5678.
Don't Sue Unless You Can Collect the Judgment
Even if you win a lawsuit, you may not be able to collect what you’re owed. Before you sue, make sure your opponent is solvent and has assets you can grab if he or she refuses to pay voluntarily.
A court may decide in your favor, but it won't collect the judgment for you. So before you sue, always ask yourself: Can I collect if I win? If not, think twice before filing a lawsuit.
Collecting from solvent individuals or businesses isn't usually a problem, because most will routinely pay any judgments entered against them. Even if they don't, as long as you have a court judgment there are a number of legal ways to force them to pay. Unfortunately, however, in a small but nevertheless significant percentage of situations, people and businesses are either broke (lawyers say "judgment proof") or so adept at hiding their assets that, even if you sue and win, collecting your winnings is likely to prove impossible.
When an individual won't pay voluntarily, collecting your judgment can be difficult unless that person has a job, money in the bank or owns real property. That's because debtor protection laws keep you from seizing and selling many types of property, including the food from the debtor's table, the clothing from her closet and the TV from her living room. And in many states it will even be impossible to seize and sell her car, because a debtor's motor vehicle is protected from being sold to satisfy a debt if the amount of equity in the vehicle is below a certain amount (often about $2,000). And if the debtor uses her vehicle for business purposes, it is often exempt from being grabbed and sold even if the debtor's equity is higher.
When determining whether you'll be able to collect a judgment if you win, the first thing to investigate is whether the defendant has a job. If a person fails to pay a judgment voluntarily, the easiest way to collect in most states is to garnish up to 15% of his wages. (The wages of very low-income workers, however, are exempt from garnishment.) But you can't garnish a welfare, Social Security, unemployment, pension or disability check. So if the person sued gets her income from one of these sources, red flags should definitely be flying unless you can locate other non-exempt assets. Real estate, bank accounts, and stocks and bonds are other common collection sources.
It can also be difficult to collect from fly-by-night businesses. If the business has no identifiable office or headquarters in your state or has already filed for bankruptcy, you may be out of luck when you try to collect.
Beware of Bankruptcy
If a person or a business declares bankruptcy under Chapter 7 of the Federal Bankruptcy Act and lists you as a creditor, your right to recover a court judgment is cut off, along with most of his other debts. (If your judgment was based on a secured loan, however, you do have the right to recover the property pledged as security). One big exception to this general rule occurs if your judgment was obtained because you or your property were injured by the malicious behavior of the defendant. In this situation, your right to collect your judgment should survive the bankruptcy (but you may need to intervene in the bankruptcy proceeding to be sure it does). An example of malicious behavior would be someone getting drunk and then attacking and injuring you.
In sum, here are some positive indicators that you probably will be able to collect a court judgment.
An individual defendant has a decent job or is likely to get one in the not-too-distant future, as might be the case with a student. Or you can identify other assets -- not protected by your state's debtor exemption laws -- that you can levy on, such as a bank account or real property (preferably other than the debtor's home).
If a business is involved, you can identify a readily available cash source from which you can collect. As mentioned, one good source is a cash register. Another good one is a valuable piece of equipment or machinery owned by the judgment debtor that you can order sold to pay off your judgment.
You are suing a person who is broke now but is very likely to be solvent in the future. Judgments can be collected for 7 or more years and accrue interest as long as they are not paid. And judgments can normally be renewed for an additional seven-year period. For example, if you are willing to take a chance that a destitute college student will eventually get a job, win the lottery, inherit money, win a personal injury lawsuit or otherwise become solvent sometime in the next few years, go ahead and sue. You'll have to sit on the judgment for awhile, but eventually it is likely to be collectible.
Now let's look at some situations where you are likely to have a problem collecting:
If a business is involved, it has no permanent address or obvious collection source such as a cash register or owned vehicles or equipment. Remember, lots of businesses lease business equipment or take out a secured loan to purchase it, which means you're out of luck.
Court-Ordered Mediation is not an option in Small Claims cases.
The maximum amount of a small claim ($10,000) must be greater than the minimum amount of a mandatory court-annexed mediation claim (currently set at $50,000) to use the court-ordered mediation program.
Please refer to the 19th Judicial Circuit Court Civil Case Mediation Program Handbook for more information about this program.
Please proceed to the
"How to Prepare, File and Serve a Claim"
section to start the paperwork.