In many situations, it is not a good idea to just “sit on it” and hope the debtor voluntarily decides to give in and pay. When a customer or vendor refuses to pay you money, the unpaid debt is generally considered a civil matter, rather than a criminal one. That means that, while the police can’t help you collect, you can take the other party to court for a civil case. A court can enter a judgment in your favor, but many creditors start by sending a demand letter to the other side.
What is a demand letter?
A demand letter is exactly what it sounds like; it is a legal notice sent from the creditor to the debtor requesting the money they owe. Generally speaking, a demand letter can be straightforward and to the point. It should include:
- How much the party owes
- A description of the debt, including how it was incurred, such as services and products you provided
- How much you can legally collect in late charges or interest
- The consequences for failure to repay, such as initiating litigation
- Any supporting documentation, such as invoices, contracts and related emails or letters
The demand letter matters because it formally puts the debtor on notice that legal action may be next. Otherwise, you would have to sue and litigate the case until you win a judgment, and then enforce the judgment. If your debtor decides to settle before things reach that point, it can spare everyone involved the whole legal process. Note that you typically don’t file the demand letter with the court. This is not a legal filing or pleading, but rather a regular document that is sent to the debtor. It is their last chance to pay before you escalate things.
Do you have to send one?
In some cases, Pennsylvania law actually requires a type of written notice to the debtor before you take legal action, such as in landlord-tenant cases. In some cases, a contract may have a requirement that you notify the debtor of the breach, or “default” on the contract, before you have a lawsuit. If a required letter isn’t sent, the debtor might successfully challenge your lawsuit when you take them to court. In general, even if you aren’t obligated to, it’s often a good idea to send a simple letter before launching a civil suit or seeking other legal relief against a debtor.
Do you need a lawyer?
There is no rule saying you need a lawyer to prepare the letter. This doesn’t necessarily mean that legal help would be excessive. Having a lawyer draft and send the letter can be a smart choice for many reasons.
A contract can also specify that the letter include certain language, or even that it has to be made via specific delivery methods, such as certified mail with return receipt requested. A knowledgeable attorney who understands what steps are legally necessary can help you fulfill these requirements and do things the right way. Failing to follow a particular statute or a contract term can create problems and cause collection efforts to slow down.
A demand letter from a lawyer often gets a debtor’s attention since it represents an implied threat that the lawyer is ready to file a lawsuit. People usually don’t want to get sued, so this may give the debtor motivation to negotiate or at least discuss the debt. An attorney can also deal with the debtor directly if they call after receiving the letter.
Before writing the letter, a lawyer will look over your contract, emails and other communications. They analyze the documents and legal issues, and pick the best and fastest way to get paid. If the debtor fails to pay by the date you’ve specified in your letter, your attorney will already be familiar with the situation when it comes time to file a lawsuit.
What happens after the letter goes out?
Every situation is different. The debtor could respond immediately with payment in full. In other cases, the creditor and debtor may end up negotiating on a payment arrangement. That might mean a reduced balance in exchange for prompt payment, or the full amount paid in installments. An attorney can negotiate with the debtor on your behalf and draft the settlement document to protect your rights. It may include protections like a confession of judgment or a personal guarantee, plus your attorney’s fees and interest.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
