Celebrating 10 years! 2007-2017

Deadbeat clients: sending them 1099s

Dear Client, After numerous phone calls and letters sent feic02/24/17
Love it! brilliant! cheapbrass02/24/17
Ha!!! esquirewalletsmatter02/24/17
Love it. Wish I'd thought of that when I had my own practice fettywap02/24/17
I wouldn't do that. The right move would have been to offer guyingorillasuit02/24/17
Good point I know longer practice so I find it hilarious. esquirewalletsmatter02/24/17
Lawyers are such cucks. People won't pay and you worry about triplesix02/24/17
Your best defense is not to put yourself in the position whe guyingorillasuit02/24/17
In my state you can collect but you need a plain language ex agentdalecooper02/24/17
That sounds like the siren song of cordelle and cordelle. I cocolawyer02/27/17
The most successful private attorney in my small town aggres justrmor02/28/17
Send the 1099. Do not send the letter. agentdalecooper02/24/17
Send them a letter saying "F@ck you, pay me." If you ins isthisit02/24/17
Agreed. Someone is bound to post a picture of that letter an mrtor02/27/17
There is nothing false in the letter: 1-client did not pa feic02/27/17
Yeah you missed pretty much everything. Who cares if you are cocolawyer02/27/17
Sadly, you can't write off an unpaid debt by a client, wheth guyingorillasuit02/27/17
You derive no material benefit from sending this letter. Get shithead02/27/17
I read this thread wondering why every reaction was not the garfieldfan02/27/17
Agreed. OP gains absolutely nothing with this scheme, may lo trickydick02/28/17
Personally, I wouldn't send the letter, but it is not petty uknownvalue02/28/17
My malpractice insurance does not like it if I send letters employmentlawyer02/28/17
Good points but I will add that malpractice carriers would l agentdalecooper02/28/17
Agreed, Agent Dale. Malpractice carriers can be the worst. A employmentlawyer03/06/17
IRS Form 982 is used to dispute a 1099c. You can also jus trumpgroupie03/02/17
It is far more likely someone too cheap to pay their bills w agentdalecooper03/02/17
No these are primarily pension recovery cases on contingency feic03/07/17

feic (Feb 24, 2017 - 5:04 pm)

Dear Client,

After numerous phone calls and letters sent to you in connection with payment of your outstanding invoice of $XXXX, I am sending you this letter to notify you that I am writing off this debt as uncollectable. Congratulations! You have successfully avoided paying for something that was provided to you.

In that regard, in order to fully comply with IRS tax law, I am enclosing herewith a 1099 with the full and correct amount of the written off uncollectable debt.

Good Luck to you!

Attorney X

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cheapbrass (Feb 24, 2017 - 5:08 pm)

Love it! brilliant!

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esquirewalletsmatter (Feb 24, 2017 - 5:31 pm)

Ha!!!

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fettywap (Feb 24, 2017 - 5:56 pm)

Love it. Wish I'd thought of that when I had my own practice.

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guyingorillasuit (Feb 24, 2017 - 6:16 pm)

I wouldn't do that. The right move would have been to offer a payment plan at super-low terms or at least get him to write a great online review. 1099ing him for bad debt does nothing but make him go around town telling people what a jerk his attorney Feic was. It does not help you one bit.

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esquirewalletsmatter (Feb 24, 2017 - 6:19 pm)

Good point I know longer practice so I find it hilarious.

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triplesix (Feb 24, 2017 - 6:32 pm)

Lawyers are such cucks. People won't pay and you worry about your reputation!? No wonder they call it **** law, can't even conduct the business properly because you end up smelling bad.

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guyingorillasuit (Feb 24, 2017 - 8:10 pm)

Your best defense is not to put yourself in the position where people don't pay you. If you're not getting paid, you're a rookie. Collect retainers, and counsel people upfront about costs. If they can't pay, let them go early.

Your reputation is worth way, way more than a couple thousand bucks some jerk doesn't pay you. You're not in business in the same way that the local carpet store is in business. People have to believe you and trust you with their lives and their life savings. You don't need anyone filing complaints and going around telling people you're not be trusted.

We all know the people who aggressively collect. These are the same people who are always in civil court defending malpractice lawsuits, and the ones who get crap reviews on Yelp. They have no reputation left to defend. All they can do is advertise everywhere, and hope to snare a bunch of naive clients. Think about it: why is it that the best lawyers generally don't have to advertise?

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agentdalecooper (Feb 24, 2017 - 8:18 pm)

In my state you can collect but you need a plain language explanation of the fee arrangement first. There are "family law firms" that are nationwide that have mastered how to best drain a retainer before any substantial court appearances, then leave the person out to dry. They have not been shut down to my knowledge.

A lot of lawyers in smaller areas make a ton of money advertising on the radio channels. If all you do is DWI and the guy gets 1 call in jail, he ain't calling someone at the regional equivalent of Wachtell--he is calling the guy with the catchy jingle he remembered.

You are right though that you really need to get the retainer up front for what your practice is built to do, or you need to have STOP signs built in to make sure the retainer is replenished,

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cocolawyer (Feb 27, 2017 - 9:20 am)

That sounds like the siren song of cordelle and cordelle. I know a couple attorney that work in redwood city and they could give two craps about the clients

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justrmor (Feb 28, 2017 - 6:49 pm)

The most successful private attorney in my small town aggressively goes after her deadbeat clients. She sues them if they don't pay her. She is also a phenomenal Divorce attorney and does not have trouble attracting new clients.

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agentdalecooper (Feb 24, 2017 - 7:32 pm)

Send the 1099. Do not send the letter.

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isthisit (Feb 24, 2017 - 8:13 pm)

Send them a letter saying "F@ck you, pay me."

If you insist on writing it off than just send the 1099. There's no need to attach a passive aggressive letter to it.

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mrtor (Feb 27, 2017 - 10:02 am)

Agreed. Someone is bound to post a picture of that letter and make you look petty. If I saw something like that, with a one-sided story from the client, I would avoid that lawyer like the plague.

In the future, carefully screen clients. Desperation can make the worst clients look attractive. The only thing worse than not working is working for nothing.

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feic (Feb 27, 2017 - 6:53 pm)

There is nothing false in the letter:

1-client did not pay and to be honest would rather go somewhere else were he has a zero balance than go back to you where he has a negative balance

2-further efforts to collect are fruitless

3-client is really happy to get away with not paying

4-written off debt is income under the IR code

5-sending a 1099 for written off debt is lawful

___________________________________________________________________

Did I miss anything?

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cocolawyer (Feb 27, 2017 - 7:01 pm)

Yeah you missed pretty much everything. Who cares if you are technically right.The letter is petty, and will earn you a reputation as a petty douche attorney. You will get reviews that you are a douche. One of your past clients will inevitably post your letter online, scaring off other potential clients. You will likely have a few bar complaints stem from this (the client will say you are incompetent that is why you didn't get paid).

I can find of no good reason why this would be worthwhile. If you want to write off the debt for tax purposes. Cool...simply send them the 1099. If you want to go a step further and send to collections...cool (you have a few steps before you can do that though). If you want to send them a letter that paying 30% of bill would write off the remaining 70%...cool.

What you cannot do is send a douche letter and expect no retribution. You can't be doing this long if this is your reaction.

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guyingorillasuit (Feb 27, 2017 - 11:21 pm)

Sadly, you can't write off an unpaid debt by a client, whether or not you 1099 him. I wish this were not so.

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shithead (Feb 27, 2017 - 7:37 pm)

You derive no material benefit from sending this letter. Getting stiffed is a rookie mistake that shouldn't happen more than once. Suck it up and move on.

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garfieldfan (Feb 27, 2017 - 8:35 pm)

I read this thread wondering why every reaction was not the first sentence of this post. That's all that should be said.

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trickydick (Feb 28, 2017 - 1:00 am)

Agreed. OP gains absolutely nothing with this scheme, may lose potential clients, and his deadbeat clients lose nothing by this.

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uknownvalue (Feb 28, 2017 - 5:27 pm)

Personally, I wouldn't send the letter, but it is not petty to want to be paid for work performed and most lawyers get stiffed by clients eventually (not just rookies). As far as the bad online review thing goes, definitely not good for business, but it also won't kill your business.

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employmentlawyer (Feb 28, 2017 - 10:24 pm)

My malpractice insurance does not like it if I send letters like this or sue/aggressively threaten to sue or collect on overdue fees owed to me by clients. Because then the clients are likely to counterclaim for malpractice and/or to file complaints with the state bar/disciplinary board.

I once (when I was a baby associate at my first firm) worked at a firm that had f*cked up a lot ethically and in order for the malpractice carrier to continue to insure us, we all had to take classes from some "ethics expert" who was there to teach us how not to get sued. He said the number one reason for complaints and lawsuits are clients who don't want to have to pay their bill, who can't afford their bill and/or who don't think the services are worth the fee. So communication and prompt collection is important and it's a best practice to cut the client loose and write off any amount owed (hopefully small... if you followed his advice about getting retainers and collecting up front).

I am not sure why he told us all of that because it was a firm heavily based on insurance defense, commercial litigation and some transactional (wills/trusts, real estate, business advising) work. It would mostly only apply to the transactional lawyers and their clients were solid. But I guess it's the spiel he gave all law firms we had to talk to.

Years later when I went out on my own I always remembered his advice. I did flat rate fees when possible and if the client needed anything else I made them pay me up front. I would highly recommend this kind of arrangement both to keep communication and expectations reasonable as well as to avoid getting stuck representing clients who haven't paid, or trying to collect on overdue fees. (I also found that it made accounting of my trust account a lot easier).

If it was a big family law case that could be ongoing and they wanted an hourly rate I made them pay me a big retainer but I generally avoided it. (On the other hand I did contingency fee rate employment law and other cases, which I enjoyed more but which carried more risk up front. So I had to be careful and only take clients who could pay a lot up front and/or higher volume work of the flat fee stuff like easy bankruptcies, undisputed divorce cases, unemployment hearings, appearances at a hearing for one issue only, etc.) I didn't lose much money in uncollected fees and when I did I felt I was actually winning because I didn't have to deal with client complaints against me.

Don't get me wrong, I did still did have to deal with some client complaints filed against me which in my state I'm forced to answer no matter what (non) basis the client (or non client) has to file them so that's one of the reasons I couldn't wait to quit practicing. No matter how well of a job I did for clients and how much I communicated with them, sometimes they still had unreasonable expectations or were just angry bitter people who wanted to complain about me no matter what I did.

For example, one time I found out bankruptcy clients were lying about their assets so I cut them loose and they filed a complaint against me (ha ha). Another time the opposing party's parents in a divorce case filed a complaint against me for representing my client too well and making their poor widdle son's lawyer have to do too much work that they were paying for (ha ha). Yet another time a client's mother filed a complaint against me because in her opinion I didn't get a good enough result in her daughter's custody case and her granddaughter was caught shoplifting while in the custody of the father. (Somehow this was my fault, according to her- ha ha).

So I did have issues with crazy clients but collecting on fees owed wasn't one of them and I was glad that that was one less hassle I had to deal with. Granted, my fees were lower than a lot of lawyers but I had high volume work that wasn't too hard to do for the flat rate fee amounts that I charged and that my clients could afford. (I also live/practice in a relatively low cost of living city so it helped that my overhead wasn't very high). Some examples include meeting with bankruptcy clients and then going to a meeting of the creditors after my paralegal prepared and I reviewed and filed their bankruptcy petition... attending an unemployment insurance hearing telephonically... representing a client at one family law hearing or reviewing divorce paperwork filed against them and advising them what they should do if they don't want to contest it... a large portion of my income came from having employment law consults or meetings with employers and employees to try to work out issues... reviewing and advising on severance agreements and trying to negotiate a higher amount although sometimes this was contingency fee based... stuff like that.)

So I advise flat rate fee work and as others have mentioned trying to collect as you go and fire them as clients as soon as they don't pay. I did have some clients truly unable to pay with whom I worked out payment plans and/or reduced fees and I still think that was way better than having to collect from them or having them turn around and file a complaint against me. Sometimes clients just really can't afford to pay high legal prices and I wanted to help them and get paid what I could so I did and I found it to be a mutually beneficial arrangement. But again it was in a pretty LCOL area and I guess I'm also a softie like that but I'm okay with it. :) I still made pretty good money and I went into the law (naively) to help people as well as to make a living.

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agentdalecooper (Feb 28, 2017 - 10:33 pm)

Good points but I will add that malpractice carriers would love it if you never did anything whatsoever with regard to a client who refuses to pay a lawfully owed bill--in fact they couldn't care one bit if you never turned a penny profit.

You don't want to become uninsurable but a lot of these malpractice hucksters want you to take it in the rear twice: (1) from the client, and (2) from the insurer with your fat premiums paid to them without requiring them to do anything.

If you ever work for a firm with a high risk practice such as consumer debt you have seen malpractice for what it is. They will always offer the contract deductible on every single case because it is your money and you authorized them to make it. No matter how ridiculous or frivolous the lawsuit. If a case goes beyond the deductible its a headache, if its a class action get ready to get into a lawsuit with your insurer because there is always an excuse for them not paying out the big league thresholds.

Not saying they are all bad, but they do not care about your wellbeing or your financial success. Just like any insurer. Those of us in ID know this well.

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employmentlawyer (Mar 6, 2017 - 3:42 am)

Agreed, Agent Dale. Malpractice carriers can be the worst. And I used to do ID as well. Most suck.

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trumpgroupie (Mar 2, 2017 - 7:32 pm)

IRS Form 982 is used to dispute a 1099c.

You can also just document why you disagree with a 1099c and not pay income tax on it.

For example, the taxpayer can just say, "the lawyer didn't do that work and was padding his bill. that is why I didn't pay that bill. Therefore the 1099c was just the lawyer being a jerk and trying to cause issues on my tax return with a fake 1099c."

Odds are that the IRS would be fine with it on a one time basis. People often ignore 1099c forms they are sent and the IRS rarely does anything. Even if the IRS does follow-up on it, it is easy to get a 1099c removed from consideration on your return as long as you are not doing it regularly.

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agentdalecooper (Mar 2, 2017 - 11:23 pm)

It is far more likely someone too cheap to pay their bills will ignore the 1099 than they would actually dispute it. My guess is the types of clients feic is having trouble with don't even fill out tax returns.

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feic (Mar 7, 2017 - 5:45 pm)

No these are primarily pension recovery cases on contingency. Client recovery is typically a pension of say $500 a month for the rest of their lives for example. No lump sum option is available and the pension is paid directly to the client (not the atty IOLA account) and it is also inalienable and judgment proof.

In many cases the PDV if this is like 65k but no one has the 25% due to you. No one can make out a check to you for 16k. So you accept $100 a month from the client as far as she goes. Once in a red moon a guy will opt to pay you a lump sum in lieu of the monthly payment but this requires a further discount.

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