How to Collect a Bad Debt in New York City

Photo of a wallet in a clamp.Are you looking to collect from a customer operating in NYC? Here’s what you need to know about collecting bad debt in New York City.

The first step is the demand phase, which is all about writing, emailing, calling the customer and asking for money. Do this from anywhere. If you can part your debtor from their money in the demand phase, consider yourself lucky, even if it means settling for a few dollars less because you avoided the expense of litigation, mediation, or arbitration – not to mention uncertainty. You recovered your monies and can move on.

How To Make The Demand Phase Productive

There may be 2 out of 10 claims paid in the demand phase. How can you maximize your chances of being one of those two?

First impressions count. You have one chance to make a first impression. Don’t waste it.

Demand can be most productive when you employ a collector in the non-paying customer’s area. By doing so, your customer will realize that you have every intention of pursuing the outstanding debt and that you take their non-payment seriously.

A savvy debtor knows. A best practice is to use a law firm familiar with your industry and with an impressive online presence. This way, when your non-paying customer Googles the collection firm sending the demand they know that you have chosen a collection firm that can proceed with a suit.

NYC has special requirements when it comes to collecting consumer debt. The New York State Department of Financial Services in NYC has rules and regulations you must comply with. Currently, the rules apply only to consumer claims.

Not Paid? Now What?

If you have a signed agreement with the customer, your contract will govern the next step. For more information about fee dispute provisions, read our blog post about the topic.


Whether your contract provides for litigation or you do not have a signed agreement, litigation is your next stop.

The parties’ locations and the amount of money involved in the controversy determine whether you can start a lawsuit to collect the bad debt in New York City. Learning which court is appropriate for your action is important. If you have a choice between more than one court, you will be able to increase your chances of expediting the action.

If you are an individual or corporation, you can sue for up to $5,000.00 in small claims court. In small claims court, you can represent yourself. For claims too large for small claims court, corporations must hire counsel to represent them.

Depending upon which court you choose and the amount of money involved, your claim may be subject to court-ordered mediation, which is mandatory. If not, with the Court’s encouragement, you may be able to participate in a court-sponsored mediation program.

Whether resolved by motion practice, through court intervention, with or without mediation, or by trial, your case will be disposed by recovering a judgment, a settlement, or dismissal.


If your contract calls for arbitration, you will have to arbitrate. Arbitration can be held with or without the customer’s involvement in the process. Once an award is made by the arbitrator(s), you will need to confirm the award in state court. The confirmation process will convert the award into an enforceable money judgment.


In some instances, the contract determines the necessity for mediation. Mediation may be a prerequisite to filing suit or compulsory arbitration. Mediation, as required by the contract, would fall outside of court-ordered mediation generally held at the American Arbitration Association, JAMS (formerly known as Judicial Arbitration and Mediation Services, Inc.) or others.

The process is straightforward and requires all parties to the controversy to agree to mediate. The aggrieved party, the party looking to collect the bad debt, would send an intention/offer to mediate. If the debtor agrees, mediator selection occurs, and the process is underway. The process is non-binding, meaning the parties need not accept the mediator’s recommendations.


Congratulations! You recovered a judgment having taken one or more of the processes described above, or you obtained a judgment by confession or were awarded a judgment from another state. New York is one of the more liberal states in allowing you to enforce your judgment to collect. However, time is of the essence.

Make sure your counsel is familiar with post-judgment remedies that will get you paid as soon as possible. However, if it takes a while, interest in NY accrues on a non-paid judgment at the rate of 9% per annum.

For more information on how to collect a bad debt in New York, state or city, contact us to review your case and see how we might be of assistance in helping you to collect a bad debt in New York City.