Owed Money? When NOT to File a Lawsuit for It
Unfortunately, sometimes crime does pay, and deadbeats do win. That’s because some lawsuits just aren’t worth filing, as this new architect found out the hard way.


“Our local newspaper wrote a nice article about me obtaining my license as an architect. This led to being contacted by ‘Diane,’ who wanted to do a remodel and expansion of her law office. She was my first client,” “Ed’s” email began.
“Before being paid for my work, at her request, I gave her the plans along with my bill of $22,000. She promised to immediately deliver a check, but it has been six months and nothing! She refuses to take my calls. I confess to being very trusting and a bit naive. We had no written contract.
“Every lawyer I have spoken to refuses to take my case, telling me that Diane is a known deadbeat. Also, the amount is too small to go to court over as it would be far too expensive. Mr. Beaver, this is now a matter of principle, and I don’t care about the money. Why can’t I get anyone to take my case?”
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Cost-Benefit Analysis: Does It Make Sense to File a Lawsuit?
I ran architect Ed’s situation by San Francisco-based attorney Matthew S. Kenefick, whose practice includes creditors’ rights.
“As attorney fees run hundreds of dollars an hour,” he notes, “ethical lawyers have a duty of not taking advantage of a client’s anger. Because the legal process is expensive, you’ve got to answer this question: ‘Does it make sense to prosecute this lawsuit on a cost-benefit analysis?’
“Given the relatively small amount that Ed is owed, plus the reality of dealing with a known deadbeat, he can’t justify paying a lawyer on an hourly basis to sue Diane, and I doubt that any lawyer would take this on a contingency fee basis. So his better remedy is just to turn the account over to a collection agency.”
I asked Kenefick what he tells clients, like Ed, who say, “This is a matter of principle?”
“Your anger will subside; my bill will remain. You are not going to erase the memory of racking up a big legal bill, especially if you win and then are unable to collect on the judgment.”
Cost Factors to Weigh: How Expensive Will This Be for You?
Kenefick describes these cost factors to consider before filing a lawsuit:
1. Where and how is this dispute going to be decided? Will it be through arbitration or mediation, both of which are costly? The different forums – federal or state court – can have very different, and often costly, procedures to follow.
2. Is there a clause in the contract dictating where in the country the matter must be heard? In many states, cases are more likely drag on for years, adding to the expense.
3. Will this case be decided by a jury or a judge? In general, a “bench” trial (trial by a judge alone) is much more rapidly conducted than a jury trial, saving attorney time and the hourly rate the client might be paying. However, judges are generally far less sympathetic than juries.
4. Does this controversy have a high enough dollar amount to make an alternative fee agreement attractive to a lawyer, such as half the fee on an hourly basis and half on a contingency? Or, perhaps entirely on a contingency, so that only if the case is won the lawyer receives attorney fees? Can you agree on a fee cap so that you will not pay beyond a certain dollar amount?
5. Are you subject to a counterclaim or a setoff? If a plaintiff initiates a lawsuit and a defendant responds to the lawsuit with claims of his or her own against the plaintiff, the defendant’s claims are “counterclaims.” Those that relate to the subject matter of the suit are compulsory and if not raised in that lawsuit, could be forever barred.
A setoff is an amount that the defendant claims the plaintiff owes him/her, which should be subtracted from any damages claimed by the plaintiff. So, if a contractor sues a homeowner for non-payment, if that contractor caused damage to the property, the cost of repair would be a set-off against what the homeowner would owe the contractor.
6. Every lawsuit costs time and often has a huge emotional toll. Judges and juries do not always get things right. If you lose your case — even though you are in the right — how well could you live with that?
Benefit Factors to Consider: Can You Collect?
Kenefick lists these factors concerning your ability to collect on a judgment, which must also be part of your decision to file suit:
- Is the party you are suing a going concern that has receivables, or are they out of business with little chance of paying?
- Are there going to be assets that you can enforce against, such as personal property? Are there guarantors or other parties contractually liable?
- Is this a claim that could have insurance coverage?
- Are there competing creditors who may be secured?
- Does the contract have a limitation of liability clause?
- Is the recovery taxable? Is it compensatory versus income?
- Is there a clause in the contract stating that the winning party’s attorney fees are added to the amount of the judgment?
- Can you deduct this as a business, tax loss or theft claim?
And When Money Is Not the Issue?
Kenefick concluded our chat explaining why there can be reasons to file a suit when actually collecting on a judgment is not the issue:
“Combating reputational harm and clearing your name can justify a lawsuit. Also, you may need to create a precedent to not be seen as a paper tiger, and are unafraid to file suit if you are not paid.”
The Bottom Line
In my experience, so often the filing of a lawsuit is the very definition of failure, a failure of one or both attorneys and parties to be honest, reasonable and fair. Some insanely high verdicts — for example, over $2 million in the McDonald’s spilled hot coffee case years ago — are the result of corporate arrogance in failing to remedy a known danger they have created.
In commercial matters, my advice has always been to explore some kind of a tax saving or business loss instead of marching off to court where only the lawyers profit from the dispute. I have seen what in reality should have been a small claims court case — a dispute over $2,000 — balloon into a lawsuit costing the owner of an auto repair shop close to $50,000 in attorney fees.
The saddest, most frustrating and scary building in any town is the courthouse. It is, in fact, a haunted house.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, "You and the Law." Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."
-
Why is My First Medicare Bill So High?
Your first Medicare bill may be higher than expected for several reasons. If your premiums aren't taken out of your Social Security benefit, the bill can be huge.
-
11 Unforgettable Road Trips to Take in Retirement
More than a travel trend, the road trip is a quintessential American tradition, with millions of us taking them each year. Here's a guide to helping you choose your next adventure.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build Wealth
Using debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
-
Five Key Wake-Up Calls for Ambitious Business Owners, From a Biz Specialist
Your personal financial plan needs to include a formal exit strategy for your business, or you could be in trouble.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You Want
True retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for Retirees
The One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
-
Ready to Retire? It's Not Too Late to Convert to a Roth IRA
Millions of Americans are turning 65 this year. If you're retiring soon, don't dismiss the idea of a Roth conversion — it could still be a smart move even now.
-
I'm a Financial Adviser: Three Things You Will Wish You Did Before the Fed Cuts Interest Rates
With potential interest rate cuts on the horizon, you might want to lock in today's higher yields and consider adjusting your asset allocation.
-
Simple Ways to Save on Back-to-School Shopping This Year
Set a budget and stick to it, scour the house for what you already have, decorate backpacks and lunch boxes with your kids and consider buying some items during holiday sales.
-
The Seven-Day Financial Reset: A Simple Plan to Get Control of Your Money, From an Expert
Sometimes, getting unstuck requires a reset. These practical steps can help you tackle your money issues and feel less overwhelmed by it all.