Podcast Transcript
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Stephanie Francis Ward: You landed someone you thought would be a great client, but now you’re finding out that client isn’t so great about paying his bill. So, what should you do? I’m Stephanie Francis Ward and on today’s episode of ABA Journal’s Asked and Answered, I’m speaking with Bob Markoff, a Chicago lawyer who’s done collections work for many years and is the past president of the National Creditors Bar Association. Welcome to the show, Bob.
Robert G. Markoff: Thank you, Stephanie. It’s a pleasure to be here.
Stephanie Francis Ward: So, when you meet someone in an initial client interview, what are some things to look for to get a sense about whether or not he’ll be able to pay his bill?
Robert G. Markoff: Well, it’s more than just the sense of ability to pay. The real question is: Will they be problem clients? Problem clients may ruin your life beyond lack of payment. Get a feeling for the perspective clients. Are they pushy? Demanding? Think highly of their case? Do they think they know more than you or are they telling you what to do? Are they willing to listen? Will they answer your questions or are they evasive?
The next step is to discuss the scope of your representation and give a true and fair estimate of your time and expenses. Don’t low ball your fees to have the client sign up. You almost guarantee a problem if you do so. If a client balks at your estimate, discuss changing the scope of representation to lower their outlay.
Whatever you do, do not lower your charges to a point that you are trading dollars or not making any money. You only lose when you do so, because in the end the matter will become unprofitable. If it is clear that the client cannot afford your services, be frank and straightforward with them and decline the representation.
Stephanie Francis Ward: Now, I know when we were talking about this beforehand, you said that a lot of lawyers—they’ll work with somebody on a fee and then they wind up maybe involuntarily doing low bono or pro bono work. Can you tell me about that? And because I think—you think, “Well, they’ll come up with the money at some point!” and nope, they don’t come up with the money at any point.
Robert G. Markoff: No. Unless you choose to do charitable pro bono work, be upfront with the client when you get into a hole with them. Tell them that you must end the representation because you need to be paid. You have a right to be paid, and if you want to give your time away, you choose to do it. Don’t have someone take your time at their own will.
Stephanie Francis Ward: Do you have thoughts—sometimes, someone will come in and they’ll try to negotiate with you on what they’ll pay you, or they’re looking for the hookup. What do you do when someone’s looking for the hookup?
Robert G. Markoff: My antennae go up and I think, “This is a problem client.” If they’re looking to be cheap—now, it’s one thing—you are able to negotiate with an attorney as to fees, as to rates, it’s the scope of representation. But if someone presses too hard, you know that at some point they are going to question a bill and further try to negotiate. So what happens is, you’re actually negotiating against yourself. By accepting a lower rate in the beginning, then when they come back to you and ask for a further discount otherwise they’re not going to pay you.
Stephanie Francis Ward: What do you do with clients—and I guess, get your retainer, but that’s hard sometimes. Say you represent a client, he doesn’t have a good case to begin with, and you lose, and then he doesn’t pay you. I think that happens a fair amount, right?
Robert G. Markoff: But, first of all, don’t take a bad case. OK? If you know the case is bad from the beginning, discuss that with the client. It is our professional responsibility not just to think of our own pockets, but also of the client’s. Don’t mislead them, because if you take a bad case and you know it’s bad in the beginning, 1.) You’re not gonna get paid, but 2.) When you seek to recover payment, there’re all sorts of additional problems that may and will arise.
Stephanie Francis Ward: Well, and maybe that goes back to screening out the bad clients. Because if you have a client and you say to him or her, “This doesn’t look good for you. You should settle.” And they’re like, “Oh, no. I wanna fight.” Because on the one hand, you can say, “Well, listen it’s your money.” But, it’s not. It’s your money because they’re not paying you.
Robert G. Markoff: As soon as they say, “I want to fight,” you tell them what the retainer will be that will cover the fight. As a collection attorney, I deal with this all the time in negotiations with defendants. The clients say they wanna fight and, well, this is what it will cost, be it court costs and time. And more importantly, your time to fight this case. Is it worthwhile? And the clients have to be realistic. And if they’re not, go away. You don’t want to be embroiled in a grudge match.
Stephanie Francis Ward: Well, and I think that’s probably an issue for lawyers as well, is it can get real personal for them when someone doesn’t pay when they said they would, and they took advantage of your time. What should you be mindful about if you feel yourself—that it’s becoming personal?
Robert G. Markoff: You have to avoid it. You have to understand that the client’s case—while you may represent the client, it is not your case. It is their case. And if they are not paying you, you must end the representation.
Many of our clients do take it personally when someone owes them money, and I get it. I don’t like when people owe us money; and while I take personally, understand that we are in a profession, but it’s also a business. And in any business, whenever you give credit there’s a risk of loss. It’s just that we want to minimize that risk of loss. And if you make this a personal grudge match, not only have you lost the money, but you’ve lost your self-esteem too. So, you in effect have lost twice.
Stephanie Francis Ward: I get it. Have you ever had a case where a lawyer retains you to get collections form a client and then the lawyer didn’t pay you?
Robert G. Markoff: It happens. What you’re speaking of—a lot of our work is on a contingency basis, rather than hourly. Especially representing other attorneys or clients, not just lawyers, and the client will receive payment directly and then say, “Well, we don’t feel like paying you” for whatever reason. And in those situations, while it happens—and not so much with attorneys, but non-attorneys—we make decisions that we’ll discuss as to whether or not we should proceed to enforce that obligation.
Stephanie Francis Ward: And I think that leads to my next question: When a client doesn’t pay you, what should you think about when it’s worth it to do enforcement? I would imagine the size of what they owe you would be the first thing, right?
Robert G. Markoff: Yes, the size of the matter is very important. You don’t want to start letter writing, phone calls, or other—especially a lawsuit—over a thousand dollars, and frankly several thousand dollars may not be worthwhile.
The reasons are that the risk of proceeding may be greater than the rewards of recovery. When we speak about risk, what are we talking about? Will they send in a complaint to the attorney registration and disciplinary commission? Or the bar association, depending on your state? If you sue them, will they file a claim for malpractice?
Those are very serious things to deal with. In fact, most professional insurance companies will tell you, “Never ever sue a client. Just drop it and walk away.”
We tell you something a little differently and that is, “Let’s review this together.” We find sometimes attorneys when they’re saying, “Oh, they definitely owe the money.” It’s not necessarily so, because as attorneys we can review the situation independent from our client and maybe see that there’s a potential malpractice claim. And those cases, we want to make sure never see the light of day.
Also, if you have a complain to the bar association—yes, you can respond legitimately, but you also open yourself up to a complete discussion with the authorities as to your billing practices, time management and more importantly your trust and operating account procedures. You really don’t want to provoke an audit from them or by them. So, when you come to an attorney for advice dealing with the collection of your account, these are some of things that we will review.
Stephanie Francis Ward: On average, when an attorney comes to you with a collections matter, what’s the average size? Is it like $50,000, $100,000, $2,000?
Robert G. Markoff: It all depends on the attorney’s practice. We find some practices, like bankruptcy attorneys—believe it or not, yes, they don’t always get paid. Some of their accounts can be $100 to $200, and now we don’t really want to accept these accounts, because we’re not going to sue, and no good comes over pursuing such matters.
But we’ve had accounts from attorneys in the domestic relations practice or intellectual property where we’re dealing with hundreds of thousands of dollars. And sometimes major companies, people of wealth to begin with, who for some reason don’t want to pay or just decide that they want to delay the process as long as possible.
So, there’s no one-size-fits-all, and we review the accounts to determine whether or not suit is worthwhile.
Stephanie Francis Ward: All right, well thank you, Bob. We are going to take a quick break, and when we come back, we’ll be talking more about how lawyers can get clients to pay what they owe.
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Stephanie Francis Ward: And we’re back. I’m Stephanie Francis Ward and joining me on today’s episode of the ABA Journal’s Asked and Answered is Bob Markoff, an attorney whose practice centers on collection work.
Bob, we were talking about weighing whether it’s worth it for an attorney to do collections from a client. And I think another important piece of that is determining if your client actually has any money to give; because that gets personal, too. And I think sometimes people get wrapped up in this idea that “I’m sure they have money, they’re hiding money, I know it’s there,” and at the end of the day, no, they don’t have any money. They spent it all.
And see, that happens a fair amount I think. More than we like to acknowledge. So, what are your thoughts on determining—is it as simple as like a Westlaw search or an asset search? How do you do that?
Robert G. Markoff: Well, first of all, it goes back to your initial client interview. You should know your client right from the very beginning. You should have an idea as to their assets and their income.
Now, over the course of representation, they may lose a job; the house may go into foreclosure; someone may die; or medical bills. Which by the way, medical bills are probably the number one reason that consumers aren’t able to pay, because something unexpected happens or a death in the family. So, you can never be assured of those situations.
But once you have determined that the client is not paying you and you’ve ended your representation, you should’ve had a good idea as to what’s going on in their life. Because a lot of the times that a client won’t pay, it’s that they can’t pay, or something has gone wrong in the case. And the key is, you’re maintaining a good client relationship, keeping them informed. Now, this goes beyond “how do you know?” Well, if you stay in touch with the client, you know what’s going on in their lives. You know whether or not they truly can’t afford to pay or they’re just playing poor with you.
Accurint searches, yes—there’s no one hard and fast way. We are members of a credit bureau, and we have an agreement with the bureau that if have an account for collection, we may use the resources of the bureau to find out what’s going in the party’s financial life.
Now, an attorney collecting their own fee is not going to be a member of the credit bureau. There are many rules and it’s—they’re very strict about who may access credit reports. In addition, we may not access credit reports to determine whether a potential client is credit worthy. We’re only allowed, as collection attorneys, to see after the fact. The account’s in our office for collection, now what can we find?
So it is very difficult to determine the ability to pay, and the best way is to maintain your client contact and know what’s going on in their lives.
Stephanie Francis Ward: Does that take life experience as well? Because I do think a lot of lawyers think, “Oh, well, this person who came to me for a divorce, their father has a lot of money and I know he’s gonna pay.” Guess what? They don’t.
Robert G. Markoff: Famous last words: “A relative will pay. A relative is wealthy.” I used to represent a bank from foreign nationals—and all legitimate—and they would tell me that, “Well, they don’t have credit problems because the family will pay the debts of the wayward son or daughter.” And when they came to this country, that didn’t translate into American standards and the bank went bankrupt, because no, they couldn’t inforce these debt obligations with family honor. No, you can’t rely on that.
Those are situations where you need a retainer. If you think a family member will pay, then that family member should be giving you a nice retainer up front before you begin any representation.
Stephanie Francis Ward: Do you think that sometimes with retainers, the client will run through it and the attorney is wrapped up in wanting to help the client do a good job, and he or she kind of loses—because it seems like if the retainer’s gone, if the client can’t replenish it, you should probably move on. But I get the sense that a fair amount of attorneys, especially people who represent individuals, will keep on trying and thinking the money’s gonna come. And I’m not so sure that it does.
Robert G. Markoff: That is a common prayer for attorneys that when the retainer’s exhausted, they will receive a replenishment of the retainer. So, in dealing with retainers, No. 1, never take a small retainer that you will run through within 30 to 60 days. That does no benefit. It gets you into the case and then you’re stuck.
No. 2, when dealing with a retainer, specify the type of retainer you’re receiving. Now, each state has its own rules regarding retainers, but is this a retainer that you are going to draw from as you provide services? Is this a retainer that is earned upon receipt? All retainers should be—actually, all representation fee agreements must be in writing. Protect yourselves right from the very beginning.
I know Illinois requires written agreements, and I presume most other states would. But it’s often overlooked in the rush of getting some work done. Do no work until that agreement is signed.
In addition, and speaking of retainers, be clear in the beginning with the client. If the retainer is there and it’s running low, it will either be replenished or you will stop doing work. Stop doing work in the beginning as soon as that retainer runs dry, because if you do not, you will continue to dig yourself into a hole. And the old adage, “If you wanna get out of a hole, stop digging.”
Stephanie Francis Ward: You hear stories—and I don’t know if it’s true or not, but you hear these war stories about some lawyer who had a client sign over the deed to their house or their car. Does that actually—can you actually do that? And if so, how and what are the risks?
Robert G. Markoff: Boy, well, No. 1, I’ve never heard of it happening, but I would not be surprised if it is done.
Frankly, what are we really talking about? We’re talking about taking a retainer in non-cash property. I do not recommend taking title, especially taking title to a car. Think about it. You’re the owner of the car; your client’s still driving it and has a serious accident, who’s gonna get sued? So, that’s not a very bright idea on the part of an attorney.
If you’re going to go down this road, and I say “if,” because I don’t recommend it, you should have the client sign a note and security agreement where you place a lien against the title to the vehicle or a mortgage on the house so that you have a lien. You don’t have title.
Again, I don’t recommend it, but there—oh, there’s something else. If you’re going to do this, I believe rules of professional conduct require that you have the client see another attorney before they sign it, so that they have independent advice as to what they are doing. Otherwise, you will be accused of self-dealing and you’ll bring upon yourself another host of problems.
Now, I will tell you, for the first time in 40 years of practice, two weeks ago an attorney asked me a question and the question was, “May I take a lien interest in a retirement account to secure payment of my fees?”
My response was no. And the reason for that response is while yes, you seemingly could do a lien interest, the truth of the matter is it would be an illusory security interest, because the law exempts retirement accounts from garnishment and attachment. So there’s no way to enforce that lien against the account either by law or for public policy reasons.
Stephanie Francis Ward: Do you think the client knew that?
Robert G. Markoff: Well, the client—
Stephanie Francis Ward: Not your client, his client.
Robert G. Markoff: Right, well, it’s funny, but there are some very, very smart people out there who always want to game the system. And we hear cases and read about them in the newspaper everyday about the various frauds being committed, check-kiting schemes and things like that. So, I don’t know that the client was thinking of that, but my point is—
Stephanie Francis Ward: It wouldn’t shock you if it were.
Robert G. Markoff: No, no. It just—you’re playing with fire.
Stephanie Francis Ward: Another thing that is kind of new—and I know people actually do this and the first time I saw it I was surprised—sometimes, especially in matter like divorce or criminal defense, someone who can’t pay an attorney will start a GoFundMe account and sometimes it’s crazy. Sometimes in a divorce case both parties will start a GoFundMe account. If you represent someone who’s doing that, should you ever get involved in trying to help them navigate that, or just steer clear?
Robert G. Markoff: Well, I am not familiar with people doing that to fund litigation, but I would steer clear. There are so many rules dealing with attorneys, funding litigation and thus—raising money to support litigation, you’re gonna get yourself into trouble. Let the client do it. Steer clear of it; and the monies that they may pay you would be fine, but I would have nothing to do with the process or giving the client any advice.
Stephanie Francis Ward: So, Bob, if an attorney hasn’t been paid and he or she is thinking about hiring a law firm like yours to collect the unpaid fees, what are some keys things they should think about before going forward on that?
Robert G. Markoff: Is it going to be worth your time and effort to pursue the delinquent account? Or are you better served working for current clients and earning money on those cases?
Proceeding against a debtor can be very time-consuming, not only for the collection attorney, but for the client too. Attending to depositions and responding to interrogatories, assuming the matter goes into litigation. And then it also takes a personal toll. You are personally involved in this, and so therefore, every day or maybe every week you’re gonna be aggravated by the situation. Is it really worth that for you to be aggravated?
And also, realize that in hiring collection council, you are never made whole. In other words, if you’re owed $1,000 and $1,000 is collected, there’s a percentage fee generally that’s going to be paid to the attorney representing you.
So, you’re never going to receive the full benefit and actually, something against my own interest—my own fee interest—is, I suggest to my clients, “Look, if you can settle the matter for 50 percent or knock off something and get the bill paid, you’re time and money ahead. Just do it and move on to the next matter.”
Stephanie Francis Ward: How does it work out? So, what percentage would they pay you to collect, if you don’t mind sharing that with me?
Robert G. Markoff: It’s not a trade secret. Collection fees vary and I’m gonna give you kinda fuzzy answer. They can go anywhere from 15 percent to 50 percent.
What goes into a fee? It is the likelihood of collection and the amount of work to be done. When we as collection attorneys enter into an agreement with clients—other attorneys—to represent them, we become partners in effect in the collection process because a portion of whatever we collect goes into our pocket as our fee.
But we also have the risk of loss. If the consumer goes bankrupt, or dies, or moves out of state, or—for whatever reason our success—we’re not successful, we’ve invested in that matter.
So, sometimes we might write a letter and so to speak, “hit it big” and the client says, “Oh my goodness. You just wrote a letter. Why are we paying you?” But you also don’t see all the times where we collect nothing for circumstances beyond our own control.
Stephanie Francis Ward: All right, and I think that’s everything I wanted to ask you today. Would you like to add anything else?
Robert G. Markoff: I am always happy to assist others. We don’t charge for phone calls. We don’t have a stop watch. I don’t mean to make this an advertisement for our services, but the point is, you should never represent yourself in a collection matter. That is only asking for trouble.
Stephanie Francis Ward: All right, well, thank you so much for joining us on this show today, Bob. You were a great guest. And I’m Stephanie Francis Ward. Thank you for listening to the ABA Journal’s Asked and Answered.
End of transcript.
Updated on Oct. 26 to add the transcript.