An hourly fee is a set amount paid per hour. At the beginning of the case, the attorney will probably require a lump sum, called a retainer. This may be a couple thousand dollars, and as the attorney works on the case they will withdraw the fees they have earned. A contingency fee is contingent on the outcome. You only pay if you win. If you lose, you pay nothing. A contingency fee is generally 1/3 of what you recover. Obviously, this cuts into your recovery, but if you can't afford to pay upfront, it may be a good option. In contingency cases, attorneys generally cover all the costs upfront. Here are some factors that go into deciding what type of fee is charged in any given case:
The size of the debt
An attorney will generally charge a contingency fee for a larger case, and an hourly fee for a smaller case. The contingency arrangement is both a risk and a reward for the attorney. The risk is that they could spend many hours on your case and get nothing in the end if you don't win. The reward is that if they do win, they get a significant fee. Therefore, the risk isn't worth it unless the amount you're seeking to collect is large. For example, if you want to collect a debt from someone who owes you $10,000, an attorney probably wouldn't take it on a contingency basis. If they are successful, they would get a fee of about $3,300, which may not be worth the risk if they spend a lot of time on the case. If they spend 25 hours on your case and charge $200 an hour, they would get $5,000 by charging hourly.
The likelihood of success
The size of the debt isn't the only consideration. An attorney will also look at the likelihood of success. If you have small case but it's fairly straightforward and you're likely to be successful, an attorney might take it on a contingency basis, even if they generally charge hourly for small cases. For example, if you are trying to recover a small amount from a large company, the company can probably afford to pay the debt and would rather pay it than go through litigation. A case like this may settle easily. On the other hand, a large amount doesn't necessarily mean a contingency fee will be charged. If you're seeking to collect $250,000, but the person who owes you the debt has no money, then a recovery isn't likely. An attorney wouldn't want to take the case on a contingency fee basis, because they aren't going to get paid if you don't get paid. They would probably charge hourly instead.
Ask questions and get it in writing
The bottom line is that debt collection attorneys consider several factors in deciding what type of fee to charge a client. Make sure you ask lots of questions. Ask how you will be billed, and whether the bill will be detailed if you're paying hourly. Ask if you will be charged any miscellaneous fees or costs during your case. In contingency situations, there generally are no extra fees - the attorney covers all costs upfront. Before you hire someone, you should sign a fee agreement. Make sure you understand everything before signing, and don't be afraid to ask questions.
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