- What is a Collection Claim?
- How Long Do I Have to File a Claim?
- Common Claims in Collections Cases
- Filing a Lawsuit and Collecting Damages
- What Kind of Damages Can I Collect on a Breached Contract?
- What Can I Collect on an Unpaid Promissory Note?
- Can I Collect Punitive Damages?
- How Do I Collect a Litigation Award?
What is a Collection Claim?
A collection claim is a legal action initiated by a plaintiff (creditor) to collect an unpaid bill or invoice from a defendant (debtor). In essence, if someone owes you money and refuses to pay or make a payment arrangement with you, then you can make a collection claim.
Filing this claim will begin the legal process to hopefully get the court to award you a judgment against the person or business that owes you money.
How Long Do I Have to File a Claim?
Six Years on Most Claims
In Colorado, you have six years to pursue a collections claim on a liquidated debt or an unliquidated, determinable amount of money due. The exception is claims for breach of contract, which are three years.
Once a statute of limitations is up, the account becomes what’s called “time-barred.” This means creditors can no longer sue someone for an unpaid debt. Creditors also cannot garnish wages or file property liens to force repayment once an account is time-barred.
However, the law doesn’t preclude creditors from calling or writing debtors in an effort to collect the unpaid money after the statute of limitations has expired.
When Creditors Can Resume Collections on Time-Barred Accounts
The statute of limitations resets on a time-barred account if the debtor makes even a small payment, and the creditor can resume collection actions, including suing the debtor.
Common Claims in Collections Cases
Promissory Notes
A promissory note is a written agreement to pay back money in a certain time under specific terms. It’s a document people sign when they take out a student loan, finance a car, or borrow money for whatever reason.
An attorney can assist you in enforcing the terms of your promissory note.
Open Accounts
An open account is created once a creditor brings a collection action against an uncooperative or unresponsive party to collect money. As the creditor, you only need to show that you provided the debtor goods or services and how much money, if any, they’ve paid on the account.
With an open account, you do not need a promissory note as evidence of the debt. You can use other records like:
- an itemized account statement,
- a ledger or log book, or
- online note of sale.
If the court rules in your favor, it will determine the amount the debtor owes you including any interest.
Accounts Stated
An account stated is an account that was in arrears or subject to a lawsuit that now is in some sort of repayment plan.
An account stated has three elements:
- an accounting between the parties
- a deal on how much needs to be paid by whom, by what date, and
- an express or implied promise to pay the balance.
An account stated requires an agreement between the creditor and debtor that the debt exists and an understanding that it will be paid back. This is called a “meeting of the minds” in legal terms.
Breached Contracts and Contract Disputes
A contract is a legally binding exchange of promises or an agreement between parties to deliver goods, money, services, or other consideration. Contracts can be oral or written, and they can be explicit or implied. A loan agreement, for example, is a contract to repay money.
A breach of contract arises when one of the parties to an agreement fails to meet the agreed-upon terms.
A contractual dispute is a disagreement over which party breached the contract. The argument could be about the facts of the dispute or an impasse over certain language in the contract. The end result is a broken agreement that can lead to one party suing the other over money lost.
If a business partner entered a contract with you and their failure to perform or honor their obligations damaged you financially, you may be entitled to compensation. You can collect that money either through a lawsuit or the terms of the contract itself.
Filing a Lawsuit and Collecting Damages
When your attempts to collect a debt are unsuccessful, it’s time to consider filing a lawsuit. While filing a lawsuit may not mean you have to go to court, you should not file a lawsuit unless you are prepared to take it all the way through the trial process. You may ultimately reach a settlement outside of court. If the case does go to court, your attorney will work to get you a judgment against the person who owes you money.
What Kind of Damages Can I Collect on a Breached Contract?
Actual Damages
In breach-of-contract litigation, a court can award actual damages which are equivalent to the proven harm, loss, or injury a party suffered due to the contract breach.
To determine actual damages, the court considers information such as:
- documentary evidence,
- fair market value appraisals,
- loss of revenue or wages, and
- costs incurred by the non-breaching party.
Simply put, actual damages are compensatory damages, according to The United States Supreme Court in Birdsall, et al v. Coolidge in 1876.
Liquidated Damages
Liquidated damages are a form of actual damages, however, they are an exact amount that is stipulated to in the original contract. The amount attempts to estimate intangible, hard-to-define losses that could occur if a party breaks their end of the deal. A liquidated damages clause aims to ensure good-faith performance by all parties.
Should I Pursue Actual or Liquidated Damages?
Some contracts allow the non-breaching party the choice of pursuing actual damages or liquidated damages if there’s a breach. Let’s take a look at an example:
Two parties enter into a contract that sets liquidated damages at $5,000. Unfortunately, there’s a breach. As it turns out, the actual damages exceed $10,000! What are the non-breaching party’s options?
The non-breaching party must choose to either go after the actual damages or liquidated damages – but not both . If the non-breaching party decides to pursue actual damages and fails to win in court, they cannot go back and try to get liquidated damages. It’s one or the other.
You and your attorney will discuss the pros and cons of each option so you have the best chance of recovering the most money.
Enforcing Liquidated Damages
The problem with liquidated damages clauses, especially in Colorado, is that they must hold to strict standards to be enforceable. According to Colorado Revised Statutes 4-2-718, these elements include:
- the parties intended to liquidate damages, and
- the amount of liquidated damages was a reasonable estimate of presumed actual damages at the time the contract was signed .
In other words, a liquidated damages clause cannot exist solely as a punitive measure against the party who breaches the contract. Let’s take a look at an interesting Colorado Supreme Court case that involves this very issue.
Colorado Court Case: Pick Your Damages
Ravenstar, LLC v. One Ski Hill Place (Colorado, 2017)
In this notable Colorado Supreme Court case, at issue was whether a non-breaching party should have the option of choosing which kind of damages to pursue.
Ravenstar, LLC v. One Ski Hill Place LLC involved a real estate deal gone bad. A group of buyers paid earnest money and construction deposits for condo units that a developer (One Ski Hill Place) planned to build. Ultimately, the deal fell through when the buyers failed to get enough financing and close the transaction by deadline.
The contract stated the developer had the option to keep the earnest money and construction deposit as liquidated damages or pursue actual damages if the buyers defaulted. The developer chose to keep the deposits as liquidated damages.
The Buyers Sue
The buyers sued for the return of their deposits. They argued the clause was punitive in nature, and since Colorado law does not allow liquidated damages to be punitive, the clause was unenforceable. ( C.R.S. 4-2-718 , see above)
The buyers also argued that the mere presence of an actual damages provision in the original contract should have made the liquidated damages clause unenforceable.
Two Losses, Two Appeals
The legal hurdle they couldn’t surmount was that all five buyers had signed the contract, thereby agreeing to liquidated damages. The buyers lost in District Court (2014) and in the Court of Appeals (2016), so they took their case to the state’s highest court – where they lost again.
Colorado Supreme Court Affirms Lower Rulings
The Colorado Supreme Court held that the enforceability of liquidated damages does not require that liquidated damages be the only remedy for a breach.
However, the high court did take the opportunity to make clear that a non-breaching party can choose only to pursue liquidated damages or actual damages, not both.
“The mere presence of an option to seek either liquidated damages or actual damages does not render the liquidated damages clause invalid as a matter of law. However, such an option must be exclusive. In other words, a provision that allows a non-breaching party to pursue liquidated or actual damages must only allow the non-breaching party to pursue one of those options.” — ( Ravenstar, LLC v. One Ski Hill Place , LLC, 2017 CO )
What Can I Collect on an Unpaid Promissory Note?
If you take the debtor to court and obtain a judgment, then your demand for payment will have even more legal force behind it. Possible damages collectible after a judgment include:- the unpaid balance on the loan,
- interest,
- court costs and attorney’s fees, plus
- any other damages that may have been specified in the note.
If the debtor fails to pay the debt specified in the promissory note, no other evidence of a breach of contract is necessary to enforce that debt.
To enforce a promissory note, you will likely need to:
- sue the debtor of the note
- get a judgment from the court
- collect on the judgment through typical collection remedies (i.e., wage or asset garnishments)
If someone defaults on a secured promissory note, you can foreclose your lien on the secured property to recover it and satisfy the debt.
Can I Collect Punitive Damages?
In any civil lawsuits where a person or property is wronged under circumstances of “fraud, malice, or willful and wanton conduct”, the jury fact finder can award punitive damages.
These punishing damages are also called exemplary damages because they are intended to make an example of the at-fault party. Exemplary damages are awarded only when the person suing proves his entitlement beyond a reasonable doubt.
The judge may award exemplary damages of up to three times the actual damages under certain conditions. The judge may also reduce or disallow a jury’s award of exemplary damages under certain conditions.How Do I Collect a Litigation Award?
So the court awarded you a judgment against a debtor, but they’re not paying. What now?
A court-ordered judgment is not the legal system’s way of asking pretty please . It’s an order . A judgment empowers the creditor to take the money owed, even if the debtor refuses to give it willingly. To this end, the law provides ways to either pressure the debtor into paying or make them wish they had.Seizing Property
With the judgment already in hand, you (the creditor) can request an execution from the court. Next, the court will appoint an execution officer — the county sheriff, for example — to seize and sell off the debtor’s valuable possessions, such as:
- valuable collections, such as coins, baseball cards, vintage vinyl albums, etc.
- extra motor vehicles, bicycles, or motorcycles
You can even get a lien against the debtor’s home. Essentially, you can ask the court to sell the debtor’s home to pay your judgment. The debtor will not be able to sell the home, or if they do, the proceeds must go toward paying you first.
Wage Garnishment
The court can order the debtor’s employer to withhold a portion of their weekly or monthly wages — usually 20 or 25 percent — and send them to you for as long as it takes to pay off the debt, court costs, attorney’s fees, and any other amount awarded in the judgment.Possible Jail Time
If there’s no way to legally access the debtor’s money or possessions, or the debtor doesn’t have enough, you can proceed toward a debtor’s examination. This is a court hearing for the debtor who must show up to answer your questions, under oath, about why they refuse to pay what they owe. Because a debtor examination is ordered by the court, if the debtor fails to show up, they face arrest and possible jail time.Need Help Collecting Money That’s Owed to You?
Now that you’re considering next steps, let a member of our experienced litigation team discuss the specifics of your case and the best way forward in your collection efforts. Are you done waiting? Call 303-688-0944 for your case assessment .
