We are frequently asked which is better; a contingent or an hourly fee? Each has advantages and disadvantages. There can be no certainty of how much legal work is necessary, how long it 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.
We can attempt collection on a contingent fee. If there is no recovery of money, property, or benefits, we receive no fee. The advantage is that you do not have to pay any new money toward attorney’s legal fees to chase money you already lost. Even if the legal efforts exceed the value of the attorney’s contingent percentage or if no recovery is made at all, you are not responsible for any additional fees, but only for out of pocket costs incurred such as copies, postage, and filing fees. The only disadvantage of a contingent fee is if the debtor pays quickly or if recovery is obtained with little legal effort, our percentage may be higher than you would have paid hourly. It is rare that there is any huge difference.
Hourly fees are charges 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 have favorable outcomes. There is no way to really know in advance although we do give it our best guess. Often an asset, judgment and lien search of the debtor (cost $150-$450) provides a good pre-suit analysis of the collectability of the debt. Hourly legal work will require an advance retainer and subsequent monthly billing as work continues. If the case resolves quickly, hourly fees may be less than contingent fees, especially on larger cases. However, we have found that when cases drag out and billing continues, clients may grow impatient and annoyed. It takes staying power to choose hourly fees.
A flat fee is a predetermined mutually agreed upon set amount for services to be rendered. For example, if we accept a case for the flat fee of $2,500, plus pre-approved costs, the Client will pay $2,500 to the attorney in advance irrespective of the outcome of the case. And the Attorney will zealously pursue the Client’s case from start to trial. (Of course, our flat fee agreement will include some provisions for early termination if continued representation no longer is deemed reasonable or ethical.)
WHICH IS BETTER?
We recommend hourly fees on good secure claims (Mechanic’s Liens, Real Property Liens), on larger cases (over $50,000), fresh cases, and for creditors with over 10 to 15 cases per year that can absorb the risk of loss of fees paid on unsuccessful cases. Contingent fees are often the choice for older claims, claims with questionable facts, debtors with marginal solvency, cases where the creditor does not want to deal with continued monthly billing, and matters where the creditor believes the case might go to trial. These types of cases likely result in higher hourly fees than the contingent percentage would be. A good rule of thumb is to select contingent fee if your estimate of hourly fees could exceed 20% of the claim.
As to flat fee vs. hourly or contingency, there is a risk factor for both the Client and the Attorney. If the case is resolved early on, an hourly fee may cost been less than the flat fee. If the debtor aggressively defends the case, the Attorney may find that after continuing representation the hourly fee works out to about $5 per hour.
RECOVERY OF FEES
Legal fees may be added to judgments if a written and signed agreement provides for such fees or when provided by statute or a rule of civil procedure. To recover an award of attorney’s fees we must pursue the case all the way to judgment and request the court to award attorney’s fees. Even then, the courts frequently award about 80% or less of the actual attorney’s fees incurred. Since many cases are resolved by negotiating settlement, often creditors will offer to waive the claim for legal fees to promote settlement payment. Sanctions are usually an award against the opposing party or attorney for improper conduct in the course of litigation. On hourly cases, any fees or sanctions recovered are returned to our clients. On contingent fee cases, fees recovered are added to the gross recovery and divided in the same proportion as the principal debt, sanctions in contingent fee cases are disbursed to the attorney.