Why Refusing to Settle Often Costs Creditors More in the Long Run

One of the biggest struggles that many creditors have when it comes to pursuing legal action against debtors is where to draw the line with respect to what they would consider a fair settlement.

By the time a situation reaches the point where attorneys need to get involved, many creditors have reached the point where they are out for blood and refuse to even consider ever settling for a dollar less than the full amount they are owed. However, this often ends up costing those creditors even more in the long run.

Smart creditors are able to put their personal feelings aside in order to make sure that they proceed in the most profitable manner possible. Because even the most frustrating situations are only going to get worst when you start throwing good money after bad.

Let’s take a closer look at four specific ways that refusing to settle can actually cost you more in the long run.

Court Costs Are Expensive

The most obvious reason that you would consider taking a quick settlement instead of slugging it out in court is that you will be saving yourself a good deal of money in court costs and attorney fees by avoiding spending time in a courtroom.

There is no telling how long a debtor might be able to drag a case out, which means there is no telling how much those court costs might end up being. The risk of this unknown is a scary proposition for many creditors.

Time Value of Money

It is also worth noting that a smaller amount today is likely to be worth more to you financially than a larger amount would be at some undetermined time in the future thanks to the time value of money. A bird in hand often is worth two in the bush in these situations.

Once again, there is no telling how long a court case might take. And even small settlements could be multiplied more than once if you reinvested them in your business over the year that it might take to win a larger amount.

Bankruptcy Risk

With many debt collection court cases taking up to a year to complete, you are also running the risk of the debtor filing for bankruptcy during that time, leaving you with a big pile of absolutely nothing.

If someone has fallen behind to the point where you are considering legal action, the odds are pretty good that they have a long list of other creditors who are going to want paid as well. Sooner or later, filing bankruptcy is going to look like a better option than struggling to pay off their debts.

Emotional Impact

You should also make a point to take stock of your emotional attachment to a particular situation and understand how that might impact you in the long run. The frustration of having to go to court and prove a debt is legitimate can be extremely taxing on an emotional level.

If these emotions find a way to get too out of control, they can create some serious damage in your business or your personal life. No amount of money is worth that level of frustration.

The debt collection process is filled with very difficult decisions, and choosing whether to pursue legal action or accept a settlement is one of the most difficult. But when you take a close look at how those legal proceedings might impact your life, it’s often a better idea to take a lesser settlement and move on with your business and your life.

By |2017-02-12T14:41:01+00:00October 20th, 2016|Blog|0 Comments

About the Author:

Graduated from University of Utah - business degree 1990. Served in US Army as an interrogator / linguist, then as a tactical intelligence officer - Military Intelligence 1986-1990. Managed Western US sales operations for NY based collection agency 1990-1992. Founded Direct Recovery Associates, Inc. 1992-present