We are frequently asked which is best, contingent or hourly fees. There is no constant answer. Each has advantages and disadvantages. There can be no advance certainty of how much legal work is necessary, how long the process will take, or whether it is economically justifiable to incur legal fees. Some debtors file bankruptcy, become insolvent, die, disappear or conceal assets. Others settle quickly. Winning cases is generally far easier than collecting the money.

Contingent Fees

We can attempt collection on a contingent fee. If there is no recovery of money, property, or benefit, we receive no fee. The advantages are that you need not put any new money in for legal fees to chase money you have already lost. Even if the legal efforts exceed our percentage or no recovery is made, you are not responsible for any additional fees, and you are not burdened by continuing expenses on a bad situation from the past. The only disadvantage of a contingent fee is if the debtor pays quickly or recovery is obtained with little legal effort, our percentage may be higher than you would have paid hourly. It is rare that there is an extreme difference and most clients are satisfied with contingent fees.

Hourly Fees

Hourly fees are charged based on actual time spent on your case. Some cases result in rapid collection. Others take extensive effort to collect. A few require extensive effort but do not result in a favorable outcome. There is no way to predict in advance.

Hourly legal work will require an advance retainer and subsequent monthly billings as work continues. If the case resolves quickly, hourly fees could be less than contingent fees on larger cases. If you have many cases and can play the odds, hourly fees can maximize recovery. However, we have found that when cases drag out and billings continue, clients may grow impatient. It takes staying power to choose hourly fees.

Which is Better?

We recommend hourly fees on good secured claims (such as Mechanic's Liens, Payment Bonds or Trust Deeds & UCC-type cases), on larger cases (over $75,000), fresh cases, and for creditors with over 10 to 15 cases per year who can balance the risk of loss of fees paid on unsuccessful cases against recovery on many.

Contingent fees are the choice for cases under $50,000 to $75,000, older claims, claims with questionable solvency of debtors, all cases where the creditor does not wish the aggravation of continued monthly bills, and all cases where the creditor believes the case might be delayed through the court system or might go to trial resulting in higher fees than the contingent percentage. A good rule of thumb is to select contingent fee if your projection of hourly fees could exceed 15% of the claim.

Recovery of Fees

Legal fees may be added to judgments if a written and signed agreement provides for such fees, or in some special cases, pursuant to a statute (such as a bond claim). To recover fees we must pursue the case all the way to judgment and ask the court to award legal fees. Even then, the courts frequently use schedules which are so low as to be unrealistic--often 6% to 8% of the debt. In cases that go to trial (only one in 40) the court may award actual fees. Since many cases are resolved by negotiated settlements or agreements, often creditors will offer to waive the legal fees the court could award to obtain voluntary payment. Sanctions are usually an award against the opposing party or attorney for improper litigation conduct.

On hourly cases, any fees or sanctions recovered are returned to our clients. On contingent fee cases, any fees recovered are added to the gross recovery and divided in the same proportion as the principal debt. All sanctions are disbursed to attorney.

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