Assessing Risk and Value in Debt Suits

If you’re being sued by a debt collector, it’s important for you to know how valuable the case is to them and how they determine that value. Knowing these facts will help you see how smart it is to defend yourself.

Value

Let’s talk about value first. That obviously starts with the amount they’re suing you for. If they say you owe a thousand bucks, that’s the number we’ll start with. That’s just the first step, though.

To get the value of the case you also have to consider the chance of losing. Lawyers actually sometimes multiply those things to come up with a dollar value of the case. If they’re suing you for a thousand dollars and think they have a 75% chance of winning. That means your case is worth 75% of a thousand dollars, or $750.

In normal cases, most of the fighting is about those two numbers, the amount at stake, and the chance of losing. In debt cases the amount at stake is pretty clear: it’s the debt they’re suing you for. And debt collectors rarely worry about losing at all, so they put the chance of winning at close to 100%, so your debt case starts with a $1,000 value. Much of what you will do during the process of litigation is to try to whittle down that $1,000 by increasing the risk of losing to the other side. They may eventually take notice of that, but probably not.

There’s another kind of risk that’s more important to debt collectors, called “collection risk.” That’s what they’re worried about. They think they’ll win a judgment every time, but they don’t think they’ll be able to turn the judgment to money so easily. They know you don’t have much money or you would have paid them in the first place, so they don’t think you can pay even if they win. It’s safe to say that they’ll reduce the value of your case by half based on that risk, other things being equal.

And what I mean by other things “being equal” is that you want to make sure you do not give them any indication that you can afford to pay them, and you don’t want them to know your banking or job information. Your case is a lot more valuable to them if they learn you just inherited a million dollars from Aunt Sue or got a great new job.

So that’s the value of the case. Let’s say it’s the thousand dollar case times 50% collection risk = $500.

Risk

Now let’s talk about what they risk: what they have to do to get that $500 from you. Of course they bought the debt already, so that’s part of the risk, but we can ignore that because it’s already been paid whether they sue you or not. It’s a “sunk cost,” as they call it. We’re only interested in the costs of suing you.

So what are those costs? Well, there’s court fees (the cost of filing suit and other related costs, but not much) and there’s attorney’s fees. The attorney’s fees are obviously the big one. The attorney suing you wants to make $200/hr. If you make him work two and a half hours on your case, that will be $500 that will completely balance out the value of the case. Any more than that and the law firm will regard suing you as a losing proposition.

That’s the thought you want going through their heads: that suing you is losing money.

Increasing Risk, Decreasing Value

We talk about that much more elsewhere, but there are a couple of things you should know. It is HARD to get the lawyer to spend two hours on your case. A lawyer is never supposed to file a case without having at least read it and made sure it’s legit, but let’s be real: they don’t (most of the time). For all practical purposes drafting and filing suit against you is automated. You probably noticed how sloppy the suit is, and that’s why.

If they conduct discovery, that will be automated, too.

If you send them discovery, their first response to you will also be automated, and they’ll object to everything.

So far their lawyer hasn’t spent ten minutes on your case. How do you make them spend time?

The main way to do that is to push your discovery and, when necessary, you move to compel answers to that discovery. You argue over their discovery, and you oppose their motions and force the case to go to trial. There will be legitimate chances to do these things, and they’re the things we help you learn how to do.

If you want to force them to give up, or to win if they don’t, these are the things you need to do.

Click here for more on why debt collectors would negotiate with you.