FAQ: Can I recover the cost of collection or attorney’s fees for debt collection?
A frequently asked question about New York debt collection is whether a creditor can recover the cost of collections, including attorney’s fees.
A request to recover the collection costs, including attorney’s fees, can be included in mediation, arbitration, or a debt collection lawsuit in New York if there is a clause in the underlying agreement. Without an agreement, you cannot recover attorney’s fees.
The clause that provides for recovery must make it clear that the creditor is entitled to recover the cost of collection in the event of non-payment. By signing the agreement, the debtor agrees to be responsible for the attorney’s fees.
The demand for attorney’s fees will be part of the underlying request and/or pleadings, set forth as a separate and additional cause of action for recovery.
If the amount of the attorney’s fees is fixed (i.e., 20% of the unpaid balance), then a specific amount can be demanded. However, if the clause provides for “reasonable attorney’s fees,” then the demand must be for reasonable attorney’s fees.
However, the demand is just that—a demand.
If your agreement provides for mediation and all sides participate, then the resolution, if any, will be agreed upon by all parties. If all parties agree that you should recover your costs of collection, which would include attorney’s fees and the mediator’s fees, then you will. If not, however, and you wish to move forward with the settlement, you will absorb some or all of the costs of collection.
Similarly, with arbitration, if the parties resolve the case during arbitration, before an arbitration award is rendered, the parties will decide the terms of the settlement. If the case does not settle and an award is issued, the award may contain the specific amount you will incur by placing the claim for debt collection. If your agreement provides for reasonable attorney’s fees, your attorney may need to provide a breakdown of the time spent on your engagement. The arbitrator would then determine an amount that would be considered “reasonable.”
Recovering Attorney’s Fees in Debt Collection Litigation
Recovering attorney’s fees in debt collection litigation begins with a demand in the summons and complaint. Recovery is not guaranteed. That is because, unless the creditor and debtor engage in protracted litigation, you, the creditor, will not recover the full amount of the out-of-pocket attorney’s fees.
Here is the process and how it affects your ability to recover the costs of collection:
- The debtor is served the summons and complaint.
- If the debtor fails to appear or answer the summons and complaint within the allotted time, you can proceed to submit a judgment to the court.
- Because the judgment is based on the default in appearance by the debtor, it is a judgment obtained without a court order.
- The judgment is entered by the county clerk. Unfortunately, the clerk cannot enter a judgment for attorney’s fees. So, if you wish for an immediate judgment, you will need to waive your demand for attorney’s fees.
What if you do not want to waive your right to recover the costs of attorney’s fees?
You do not have to waive your right, but be prepared for a delay in obtaining judgment if you don’t. This is because an application must be made to the court for an order “severing” or separating the causes of action in your complaint. Your request will be to split the request for attorney’s fees from the rest of the case. This way, you can request an inquest—a hearing on the value of the attorney’s fees—so that the court can fix the amount and value of the attorney’s fees to get to this point.
If the case is like most debt collection cases, the approximate time it takes to get to this point is around 13-15 hours. Should the court determine that a reasonable fee for debt collection is $325, then, after having your attorney submit an affidavit detailing the work and time put into the case, you will most likely be awarded approximately $4,800. However, the time it would take to obtain an order granting you attorney’s fees, even on an expedited basis, would be another 9-12 months, further delaying the submission and entry of your potential judgment.
When it comes to debt collection, speed is key.
The attorney’s fee award would be included in your judgment, but the delay of a year or so can mean that a judgment that was collectible last year may not be collectible today. In that case, the attorney’s fee award becomes useless, and you can no longer collect the principal plus interest and costs.
Looking for an attorney to handle your debt collection case? Contact Frank, Frank, Goldstein and Nager by email or call +1 (212) 686-0100. We have the experience that pays.
