A Collection Agency’s Overview of the Debt Collection Litigation Process and Costs Within the USA

by Jeffrey Tulchin, President, STA International

Regardless of size, revenue, or industry, most organizations have one unfortunate commonality: the need to enforce payment of debt. When this occurs, many businesses choose to retain the services of a collection agency to assist with the process. But sometimes collection efforts require legal assistance – which means the need for debt collection litigation.

At STA International, we extend every possible effort to obtain payment on a debt before recommending that we forward the debt to an independent law firm. In the United States, lawsuits generally should be filed in a court where the debtor is located, so the court has jurisdiction over the debtor. STA has relationships with hundreds of US law firms located in every major metropolitan area; all are members of the prestigious Commercial Law League of America.

Authorization and contingency rate

STA will obtain authorization from our client before sending a debt to an outside law firm. At this point, the creditor’s contingency rate (as a percentage of collected funds) will usually increase to allow for both a potential contingency rate for the law firm and a reduced contingency rate for STA. This legal contingency rate applies upon forwarding to the local attorney.

Following authorization from the creditor, we will send all backup documents (invoice, statement of account, etc.) and a forwarding letter to the law firm, along with a summary of our history with the debtor.

Determination of financial viability and payment demand

The law firm will make efforts to determine the debtor’s financial viability and research the corporate identity and status of the debtor. They will make a demand upon the debtor for payment of the debt. If the debtor is unresponsive to their demands, the law firm will provide its recommendation concerning the potential filing of a lawsuit and the costs required to do so.

Court costs and suit fees

The filing of a lawsuit requires fees to the law firm. These fees have two components. The first component is court costs – this covers the expenses needed for the court to accept the lawsuit and includes process server fees and the cost of entering a judgment. The amount varies depending upon the State and County as well as the amount of the debt. Generally speaking, costs tend to be lower in rural areas and lower debt amounts, with major metro areas and higher debt amounts equating to higher court costs. Court costs usually range from $400 to $750.

The second component is a “suit fee,” which is an additional charge, over and above contingent collection commissions. A suit fee of 10% of the amount collected is the US industry standard for legal actions involving collections. The suit fee is often fully contingent as a percentage of collected funds. Unless the debt is for a considerable amount and allows for a negotiated reduction with the law firm, the typical total contingency rate to be paid by a client will be 35% (25% legal contingency fees rate plus 10% contingent suit fee).

Though not typical, a law firm will sometimes request a non-contingent suit fee, which is upfront compensation to the law firm for their work to prepare and prosecute the lawsuit. Any non-contingent suit fee is considered an advance on the contingent suit fee. If (for example) a law firm requires a $500 non-contingent suit fee, it will not receive its 10% suit fee on the first $5,000 collected.

What’s included – and what isn’t

For the fees referenced above, the law firm is agreeing to file and prosecute a lawsuit. They are not, however, agreeing to defend a counterclaim by the debtor, if such a counterclaim is brought.  Should a debtor file a counterclaim to the case, the law firm has the right, according to Commercial Law League of America guidelines, to charge hourly rates in defense of the counterclaim. For this reason, STA is careful to avoid disputed litigation and cautious to point out the potential for additional costs to a client if litigation on a disputed balance is commenced.

Process of suit

Once a lawsuit is filed, the debtor must be served with the lawsuit. Depending upon the court, the debtor has about 35 days following service to file an Answer to the lawsuit. At this point, the case can proceed in several directions.

  1. The debtor, itself or through its lawyer, could offer a resolution, and the parties could negotiate a settlement and/or payment plan prior to pretrial conferences, mediations, or trial. All settlements are subject to the creditor’s agreement, and the creditor has the final say on whether to settle the matter or to continue the litigation.
  2. The debtor could file an Answer, which is a response to the lawsuit’s factual allegations and legal claims. Next come discovery, mediation, and pretrial conferences that attorneys for both sides must attend. Although rare, it is always possible that a client will be required to appear at a pretrial conference or deposition. Clients – especially those who are International and/or have long travel times – need to be aware of this possibility.
  3. The debtor does NOT answer the complaint, and the law firm then applies to the court for a default judgment.


If a judgment is taken against a noncooperative debtor, the case moves to the judgment enforcement stage. At this stage, the law firm will contact the debtor or their attorney to attempt voluntary collection of the judgment amount or negotiate a payment plan. However, most often, a debtor with a judgment entered against them will not cooperate in paying. In such cases, the law firm may suggest that the creditor expend additional funds for judgment enforcement proceedings.

This most commonly includes:

  • Costs for a bank search and levy on any bank accounts found
  • A wage garnishment on a known employer (if the judgment debtor is an individual)
  • A demand for an examination where the judgment debtor must appear for questioning (along with their books and records)
  • Sending a sheriff to the debtor’s premises to make a demand for payment.

Judgment enforcement proceedings can be pricey, and STA International will guide the client to make expenditures wisely at every stage of the litigation process, considering the amount in question and the likelihood of success.

STA International – no ownership or profit-sharing relationship with any law firm

It is important to note that we do not charge any fees for our work on legal files (other than potential contingency fees on collections), and all monies paid by clients are 100% remitted to the independent law firm. STA has no ownership or profit-sharing relationship with any law firm, and we are thus unbiased and committed to connecting our clients to the most effective collection law firms throughout the country.

For questions regarding STA International and the legal process for collections, please do not hesitate to contact me at [email protected] or 516-478-4078.

For assistance with a commercial debt, reach out to me directly, or reach out here.