What are the next steps in debt collection when demand fails to produce payment of your claim? If you have a written agreement with your client, the answer may depend on the terms and conditions of that agreement. Some contracts and agreements contain clauses dictating how disputes must be resolved. For those whose agreements or terms and conditions require arbitration of disputes, including fee disputes, the next step in recovering money owed will be arbitration.
But what if there isn’t a signed agreement or terms and conditions that require arbitration? Typically, without a requirement to arbitrate, litigation is the next step. However, if interested, you may still have the ability to utilize arbitration.
Proceeding With Arbitration for Debt Collection
You can proceed with arbitration if both parties agree to arbitration. Parties can agree to arbitrate at almost any point in the debt collection process, even during litigation. Most often the courts will agree for the parties to “stay litigation” pending arbitration. The litigation, if in process will stop pending the completion of the arbitration.
What if the parties do not agree to arbitrate during litigation? If the parties fail to agree to arbitrate during litigation certain claims will go to compulsory arbitration as ordered by the New York court system. Although New York’s Supreme Courts do not require parties to arbitrate debt collection and other claims, the lower courts do.
There may be an industry-specific requirement that requires the arbitration of certain or all claims. For example, legal fees depend on when the services were rendered and the total owed pursuant to New York State’s Fee Dispute Resolution Program.
Pros and Cons
As with all things, there are pros and cons when it comes to arbitrating debt collection claims in New York.
Pros include:
- Avoiding possible counterclaims
- Avoiding possible class action lawsuit
- Keeping the facts and circumstances of the claim private
- A faster pace than litigation
- Selection of an arbitrator
Cons include the economics of arbitration. Arbitration can be pricey. You need to advance the cost for the administrative agency as well as the hourly costs for the arbitrator. If the other side does not pay their share of the arbitrator’s fees, the arbitrator will look to you to pay their share. If your agreement requires arbitration, you will be faced with the dilemma of continuing with arbitration and paying the additional fees or writing off the debt.
Additionally, the arbitrator may consider more evidence, facts, and testimony than a court might. This additional information could influence the arbitrator’s decision.
Ultimately, though arbitration can proceed faster than litigation, it may still be a timely process. Arbitration results in an award. You will need to file an application with the state court to confirm the arbitration award. If unopposed, this process can take a minimum of six additional months, at best.
If you have a debt collection matter that you need assistance with, contact Frank, Frank, Goldstein and Nager for a consultation.
