Creditors normally refer delinquent accounts to attorneys only as a last resort and only when all prior attempts to collect the default balance have failed. In most cases, once an account has been referred for legal action, a formerly recalcitrant debtor usually will be able to make payment arrangements with the attorney. The important issue is whether the payment plan will be sufficient to forestall the attorney from obtaining a judgment against the debtor.
Role of Attorney
An attorney is duty bound to act in the best interests of his client. Most attorneys to whom a creditor has referred a delinquent account will have been granted express authority to exercise their professional judgment in deciding if and when to file suit or whether a payment plan with the debtor would be more advantageous and less costly.
Attorney As A Collection Agent
Many credit card companies refer their defaulted accounts directly to a law firm instead of first using a collection agency. From the creditor's perspective, such an arrangement may prove more cost-effective in terms of the net amount collected than from employing a collection agency as an intermediary and then subsequently referring the account to a law firm for legal action. Since most creditors are interested in receiving a payment stream on formerly inactive accounts, most attorneys who handle large volumes of collection cases will be receptive to entering into a reasonable payment arrangement. As long as the debtor abides by the agreement, most attorneys will not file suit.
Pre-Litigation Payment Arrangements
In some cases, it is more advantageous for the attorney to execute a payment agreement with the debtor that meets the requirements of the creditor than it is to file suit and incur filing fees as well as court costs, which in some jurisdictions, can be cost-prohibitive. Some attorneys will agree to a payment plan with the debtor contingent upon submission of a financial form that documents the debtor's overall financial condition and current ability to pay. If a debtor refuses to work in good faith with the attorney to establish a payment plan that is reasonable given the debtor's current financial circumstances, the attorney may decide to file suit to compel payment.
Post-Litigation Payment Arrangements
If warranted by a debtor's refusal to enter into a satisfactory payment arrangement, an attorney may decide to file suit against the debtor and seek to obtain a judgment in the amount of the default balance plus any interest that has accrued on the delinquent account. Once a judgment has been obtained, the attorney can garnish the debtor's wages, attach his bank account or place a lien on his real property. In circumstances where a judgment has been obtained, a debtor still may be able to enter into a voluntary payment arrangement, if, in the discretion of the attorney, it would be in the best interests of the creditor.
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