What are Contingency Fees in Collecting Debt?

Debt collection can often be a daunting and frustrating process, especially when you’re dealing with delinquent payments or unresponsive debtors. As a business or individual trying to recover money owed to you, hiring a debt collection lawyer can help streamline the process, but many wonder about the costs of such services. Enter the concept of “No Win, No Fee” debt collection, a popular arrangement for those who may not have the financial resources to pay upfront for legal services. But how do contingency fees work in this context? 

In simple terms, a contingency fee is a type of payment arrangement where the attorney’s fee is contingent upon the successful recovery of the debt owed. This means that the attorney only gets paid if they win the case or successfully collect the debt. If they don’t recover any money for you, you don’t owe them anything.

This type of fee structure can be an appealing option for individuals and businesses who don’t have the funds to pay upfront legal fees, especially when dealing with overdue debts. The contingency fee is usually a percentage of the amount recovered, which can range anywhere from 10% to 40%, depending on the case’s complexity and the legal firm’s policies.

How Does the “No Win, No Fee” Arrangement Work in Debt Collection?

In the world of debt collection, many firms offer a “No Win, No Fee” arrangement, which directly ties the success of the case to the attorney’s compensation. The idea is simple: if the attorney doesn’t recover the debt for you, you don’t have to pay them anything.

Here’s a breakdown of how it typically works:

  1. Initial Consultation: The process begins with a consultation between the debtor and the attorney. During this meeting, the attorney will assess the details of your case and determine whether it is worth pursuing. If they believe they can successfully recover the debt, they may offer a “No Win, No Fee” agreement.
  2. Signing the Agreement: If you choose to move forward with the debt collection lawyer, you’ll sign a contract that outlines the terms of the contingency fee. The contract will typically specify the percentage the lawyer will take if the debt is successfully recovered. Be sure to review this agreement carefully to understand the percentage and any additional costs that might apply.
  3. Debt Collection Process: Once the agreement is signed, the lawyer will begin the debt collection process. This can involve sending demand letters, negotiating payment plans, and potentially filing a lawsuit if the debtor is uncooperative. Throughout the process, the attorney will be working to recover the owed money.
  4. Recovery and Payment: If the debt is successfully recovered, the attorney will take their agreed-upon percentage. 
  5. What Happens If the Debt is Not Recovered? If the attorney fails to recover the debt, you do not have to pay them anything for their services. This eliminates the financial risk for you as the client, but it’s important to note that you may still be responsible for certain costs, such as court fees, administrative expenses, or other disbursements. Ensure that these costs are outlined in your contract to avoid any surprises.

Pros and Cons of “No Win, No Fee” Debt Collection

Pros:

  • No Upfront Costs: The biggest advantage is that you don’t need to pay any legal fees upfront, which makes it a viable option for those who cannot afford the high cost of litigation or legal services.
  • Risk-Free: The “No Win, No Fee” structure means that you bear very little financial risk. If the attorney doesn’t recover the debt, you don’t pay them, which makes it a cost-effective solution for many.
  • Incentivised Lawyers: Since the lawyer only gets paid if they successfully recover the debt, they are highly motivated to put their best efforts into collecting the money owed to you.
  • Access to Expertise: By entering into a contingency fee agreement, you gain access to legal professionals who specialize in debt collection and understand the ins and outs of the process.

Cons:

  • Higher Percentage Fees: While there are no upfront costs, the trade-off is often a higher percentage of the recovered debt. Some lawyers may charge anywhere from 20% to 40%, which can be substantial if the debt amount is large.
  • Not Guaranteed Success: While lawyers are incentivized to recover your debt, there is no guarantee of success. In some cases, even the best legal teams may be unable to recover the full amount, especially if the debtor is uncooperative or insolvent.
  • Additional Costs: Be aware that there may still be other costs involved in the process, such as court filing fees or administrative costs, which you may still be required to cover even if the debt is not recovered.

If you are facing overdue debts and are considering debt collection services, consult with a qualified debt collection attorney who can help guide you through the process and offer a transparent, reliable fee structure. By understanding how contingency fees work in debt collection, you can make an informed decision and choose the best course of action for your situation.

Contingency Fees With Burger Huyser No Win No Fee Debt Collection Attorneys

At Burger Huyser Attorneys, we offer various fee structures for our client’s debt collection needs:

  1. We can charge fees on a contingency basis whereby we retain 20% of the capital collected as legal fees; or
  2. We can charge a set fee for certain items at a fixed rate, irrespective of time spent; or
  3. We can charge fees at an hourly rate as per our general mandate and fee agreement;

Once we collect the outstanding debt, 80% of the capital will be paid over to our client and we will retain 20% of the capital as our legal fees. We will only be entitled to payment, once we have successfully collected the debt on your behalf.

Any fees collected will be utilised towards disbursements first. If we were unsuccessful in collecting the debt from the debtor, you will remain liable for payment of disbursements, such as sheriff and tracer’s costs. No-win-no-fee agreements are only applicable to liquid claims. Complicated matters, including but not limited to, contractual disputes, estate litigation and opposed matters may not fall under the no-win-no-fee agreement.

At Burger Huyser Attorneys, we specialise in providing tailored legal services for debt collection. Our “No Win, No Fee” approach ensures that you receive professional legal help without the financial burden. Reach out to us today for a consultation and let us assist you in recovering the money you’re owed.

Contact Burger Huyser Attorneys, and book a consultation.

To speak to one of our experienced attorneys in South Africa for immediate assistance, contact us on the numbers below:

Randburg call 061 516 6878; Roodepoort call 061 516 0091; Sandton call 064 555 3358;  Pretoria call 064 548 4838;

Centurion call 061 516 7117; Alberton call 061 515 4699; Bedfordview call 061 536 3223

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE