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 devastating 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.