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From A Sunk Cost To Recoverable Money: Attempting To Recoup Attorneys Fees In Collection Cases

Authored by attorney Shalanda N. Franklin

Unless your business operates on a cash-only basis, you’ll likely need to take some action to collect money from a nonpaying customer.  In some cases that action requires litigation and an attorneys’ services.  In Virginia, non-lawyers are generally prohibited from representing corporate-type entities in court.  Although there are exceptions to the rule, they are rare and most are limited to filing paperwork in a Virginia General District Court.  With careful planning, the burden of paying attorneys’ fees in collection cases could be shifted to the nonpaying customer. 

There is no automatic right to recover attorneys’ fees in Virginia.  Virginia follows the “American Rule” where each party is responsible for paying their own attorneys’ fees.  A business can opt out of the “American Rule.”  This can be accomplished by requiring customers to sign a purchaser order, work order, contract, or credit agreement which requires the customer to pay all collection cost, including attorneys’ fees, incurred to collect money owed by the customer.   These agreements are typically signed before the goods or purchased or services or provided.  But in some cases, a customer will agree to sign a written agreement that contains an attorneys’ fee provision in exchange for having additional time to pay arrearages.

Even if a customer has a contractual obligation to pay attorneys’ fees, courts decide how much, if any, of the fees the customer must pay.   Virginia courts must determine whether the fees are reasonable and necessary after considering a number of factors.    If the fees are, the Court will award an amount it deems reasonable under the circumstances, which may differ from the amount of fees actually incurred. 

Recovering attorneys’ fees in collection cases is not impossible.  However, it requires adopting procedures now that help establish a right to collect the fees in the future.  Please consult your attorney for more information.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.

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