In some small-claims courts, small-business owners are responsible fore more than 60 percent of the claims.One of the reasons this collection method is becoming more popular with small business owners is that it eliminates the substantial fees charged by attorneys and debt collectors. Here is an overview of what types of claims you can file in small claims court, and the steps you need to take when filing one.
What Types of Claims You Can File
Business owners can file two types of lawsuits in small claims court. You can file a suit in an attempt to collect outstanding accounts receivable from customers, or you can settle other disputes with customers, suppliers, or vendors. For example, if a supplier sold you an inventory of flawed merchandise and refused to credit you for it, you could take the case to small-claims court and try to recover you money. Likewise, if you sell your products or services to another business or individual and they refuse to pay, you can settle it in small-claims court without having to pay a large percentage to a collection agency.
Determine if the Dollar Amount is Within State Limits
Every state has different guidelines for the maximum dollar amount allowable in disputes, and they can vary widely. For instance, Kentucky has the lowest maximum at $2,500, and Tennessee has the highest at $25,000. You can still sue if you’re owed more money, but you will be limited to collecting only the maximum amount allowed in your state, and you will not be allowed to split the claim into more than one lawsuit. In addition, once you win a lawsuit in small-claims court, you give up the right to collect in any other court. That means if your client owes you $35,000 in Tennessee, and you win the case, you can only collect $25,000 and will have to write off the other $10,000. You can check this online chart to determine your state’s maximum dispute amount.
Check the Statute of Limitations
Just as in other courts of law, there are statutes of limitations for small claims court lawsuits, and for debts, they range from 2 to 15 years. In most instances, it would be advantageous for you to file as soon as you realize the customer does not intend to pay you. To find out the statute of limitations in your state, check out Nolo’s chart for all 50 states.
Determine Where to File Your Case
If the person you are suing lives or does business in your state, you should file the case in the small-claims court nearest to their home or office. If your lawsuit involves a breach of contract, you may be able to sue in the court nearest to where you signed it.
Notify the Defendant
It will be up to you to notify the people you are suing, and you must serve them with a copy of your claim. You can serve them by certified mail through the court clerk, or with a process server at their home or business.
Prepare Your Evidence
Just as you would in any court case, you will need to arrive at the trial prepared. A judge will hear the case and base the decision on the evidence provided by both parties, so make sure that you can back up your claims. Some of the types of evidence permitted are contracts, invoices, phone or email records of collection efforts, and letters or testimony from witnesses.
Collect the Judgment
If you are victorious in small-claims court, you will be responsible for collecting the money owed to you. Your first step should be to write the defendant a letter requesting that they pay you what’s due. If they still won’t pay, the small-claims judgment gives you the same legal options you would have if you won a lawsuit in other courts. If the defendant is employed, you have the right to garnish that person’s wages. To do this, take a copy of the court’s judgment to the local sheriff, and inform them where the defendant works. If the person is not employed, you can file a lien against any property the person owns.
If you have more questions about the specific rules in your state, visit Nolo.com’s overview of small claims rules.