Question: I loaned someone about $5,000 two years ago. The person was supposed to pay me back within two years, but has never even made an effort to pay any of the money back. I have made phone calls and written letters, but can’t get any response from the person. I was thinking about hiring a collection agency to go after the person because I know that they have a better chance of receiving the money for me than I do. Is that my best option?
Answer: Because the amount of money owed is less than $10,000, the most cost effective way to collect the debt owed is to file a case in the small claims court. Small claims courts were created in Texas for the purpose of allowing citizens to be heard on matters that may be handled quickly. Guidelines for who may file a claim in a small claims court are set out in the Texas Government Code, Title 2, Judicial Branch, Subtitle A, Courts, Chapter 28, Small Claims Courts. In this instance, so long as the plaintiff is not in the regular business of loaning money for interest, may file a claim in small claims court, so long as the amount of the claim is not greater than $10,000. The amount was raised in recent years from $5,000. The claim is generally filed in the county where the defendant resides.
The cost to file the claim is minimal compared with a county or district court, and some of the formalities of the county or district courts do not apply to a small claims case. The Justice of the Peace of the Precinct or county is the judge who will hear the small claims case. If a plaintiff assigns their claim to a third party, such as to a collection agency, then the claim may not be filed in the small claims court.
The advantages of filing in the small claims court are the “quick” justice nature of the court. Discovery (evidence finding period) is limited in the justice and small claims courts, and a person may represent himself or herself without hiring an attorney. Further, the judge that hears a small claims case is charged by law to develop the case. That means that the judge may ask questions of the parties and witnesses, and even issue a summons to appear to anyone who may have relevant information about the claim. Judges in county and district courts do not have that same freedom.
The formalities of the county or district court are waived to some extent in the justice and small claims courts. That allows the judge to move the case along with some expediency, and parties are encouraged to “tell their side” of the case. If a plaintiff wins their case in small claims court, they are granted a judgment, as in district or county court. A judgment details the circumstances of the “win” or “loss” of a claim. For instance, if a plaintiff is awarded the money that they are owed, plus costs such as their filing fee or money spent in an effort to collect the money owed, the judge may award them a sum of money that includes all of their expenses, which is the same as in county and district courts. The cost to the plaintiff, however, is much less in the small claims court and the process is much faster.
A collection agency’s tactics may be more forceful than an individual’s. While they may be successful in collecting money owed, they will charge a fee, generally a percentage of the total money collected. If the collection agency is unable to collect from the person owing money, then their claim must be filed in a county or district court, and the overall expense in the end will be greater. The collection agency’s attorney will file the claim, which also increases the expenses to the plaintiff, and the case could take months or even years to get finalized.
Many people find that filing a claim in a small claims court wasn’t nearly as scary or mysterious as they first believed. The judge and the judge’s staff are often quite helpful in the filing process to the extent allowed by law. Also, the Texas Government Code provides the form required for filing the claim, or a plaintiff may pick up a form from the small claims court and “fill in the blanks.” If a person chooses to hire an attorney either as a plaintiff or defendant, they are free to do so.
This article is meant for informational purposes only and not as a substitute for sound legal advice. Direct questions to Ask the Lawyer to firstname.lastname@example.org or through the Facebook page for the Dalhart Texan.