Collections in Alabama: A Legal Overview

In Alabama, the recovery of outstanding debts is a structured legal process governed by a combination of common law, state statutes, and federal regulations. For creditors and business owners, understanding the nuances of collections in Alabama is essential for determining the most effective path toward recovery.

This guide provides a professional breakdown of the types of debt recognized by Alabama courts, the litigation timeline, and the mechanisms available for enforcing judgments.

I. Understanding Jurisdictional Limits in Alabama Courts

Before filing a lawsuit, it is critical to determine the appropriate court based on the amount in controversy. Filing in the wrong court can result in dismissal or unnecessary delays. Alabama law sets strict monetary caps for each court, which limits the maximum amount a judge can award, exclusive of interest and costs.

• Small Claims Court (District Court): The Small Claims docket is reserved for disputes where the amount claimed is $6,000 or less. These proceedings are generally more informal and move faster than other courts.

• District Court: The District Court has jurisdiction over civil actions where the amount in controversy does not exceed $20,000.

• Circuit Court: The Circuit Court holds exclusive original jurisdiction for claims exceeding $20,000.

• Concurrent Jurisdiction: There is an area of concurrent jurisdiction between the District and Circuit Courts. Specifically, for claims ranging from $6,001 up to $20,000, a plaintiff may essentially choose to file in either District or Circuit Court.

Choosing the correct venue is a strategic decision that balances the complexity of the case against the speed of resolution.

II. Types of Collections Actions

Alabama law distinguishes between different categories of debt. The specific classification of the debt determines the evidentiary requirements and the applicable statute of limitations.

Open Account

An open account arises when credit is extended based on a seller’s evaluation of the buyer’s creditworthiness without fixed terms regarding quantity or dates. This typically applies when goods are sold or services are rendered and knowingly accepted. The legal obligation to pay is presumed by the acceptance of the work or goods.

Account Stated

This is a post-transaction agreement. An “account stated” occurs when parties with prior dealings agree that a specific balanced amount is correct and due. If a creditor presents a billing statement and the debtor fails to object within a reasonable time, Alabama law may view this silence as an admission of the account’s correctness. This cause of action is based on a new promise to pay rather than the original liability.

Verified Statement of Account

Under Ala. Code § 12-21-111, a plaintiff may file an itemized statement of the account verified by an affidavit. This is a powerful tool in collections in Alabama. If this verified statement is filed with the lawsuit, the burden of proof shifts to the defendant. The defendant must then file a counter-affidavit denying the correctness of the account. If the court finds the defendant’s denial was not made in good faith, the defendant may face a 5% penalty on the final judgment.

Promissory Notes and Contracts

These are specific agreements, whether oral or written, that define the fixed responsibilities of the parties. Written contracts often include provisions for the recovery of attorney’s fees and interest in the event of default. It is important to note that collection costs and interest on late payments are generally only recoverable if they were agreed to before the collection efforts began.

III. The Litigation Process and Timeline

The timeline for a collections lawsuit is dictated largely by the Alabama Rules of Civil Procedure.

• Response Window: Once served with a summons, a defendant has 14 days to respond in District Court and 30 days in Circuit Court.

• Default Judgment: If the defendant fails to file a response within these windows, the plaintiff may immediately apply for a default judgment.

• Appeals: A judgment in District Court can be appealed to the Circuit Court for a trial de novo (a new trial) within 14 days. A Circuit Court judgment must be appealed within 42 days.

Aggressive Strategies to Expedite Resolution

To shorten this timeline, legal counsel may employ specific procedural mechanisms:

• Burden Shifting: As noted above, filing a Verified Statement of Account shifts the evidentiary burden immediately, often forcing an earlier resolution.

• Summary Judgment: If the facts of the debt are undisputed, a motion for summary judgment (Rule 56) can resolve the case without the need for a full trial.

• Pre-judgment Seizure: In extraordinary circumstances, a plaintiff may seek attachment or garnishment to secure assets before a judgment is entered, provided a bond is posted.

IV. Demand Letters and Pre-Suit Requirements

While litigation is the final enforcement mechanism, it is rarely the first step. Judges in Alabama generally prefer that parties attempt to resolve disputes before filing suit.

• Mandatory Demands: In certain contexts, such as claims under the Alabama Deceptive Trade Practices Act, sending a written demand letter at least 15 days prior to filing suit is a mandatory predicate.

• FDCPA Compliance: If the attorney is defined as a “debt collector” under the Fair Debt Collection Practices Act (FDCPA), the demand letter must contain specific legal disclosures regarding the collection of the debt.

• Strategic Value: A professional demand letter frames the legal issues and can often lead to an amicable settlement, avoiding the costs associated with trial.

V. Post-Judgment Recovery: Collecting the Money

Securing a judgment is only half of the process; the next phase is enforcing that judgment to recover funds.

• Judicial Liens: By recording a certificate of judgment with the Probate Office, a creditor creates a lien on all the debtor’s property in that county. This lien is valid for 10 years and can be renewed.

• Garnishment: This process allows a creditor to collect directly from a third party holding the debtor’s assets, most commonly an employer. Alabama law typically permits garnishment of up to 25% of disposable earnings.

• Execution: A writ of execution authorizes the sheriff to seize and sell the debtor’s personal or real property to satisfy the judgment.

• Discovery of Assets: If the location of the debtor’s assets is unknown, the creditor may file a complaint to compel the debtor to disclose their assets.

VI. Defenses and Limitations

Creditors must be aware of potential defenses that debtors may raise to bar a claim.

• Statute of Limitations: This is the most common defense. The window to file suit is generally 3 years for open accounts, 6 years for simple contracts or accounts stated, and 10 years for contracts under seal.

• Exemptions: Alabama law provides debtors with certain exemptions, including a homestead exemption and a personal property exemption, which protect specific assets from seizure.

• Accord and Satisfaction: A debtor may claim that the parties agreed to settle the debt for a lesser amount and that this amount has already been paid.

• Negotiation: I often see situations where, while the full amount of debt is owed at once, the creditor is open to payment plans or reductions in the debt to recover. This can be a win-win for both sides. If my client is open to negotiation, I work hard to find leverage to pursue a structured settlement or reductions of the total amounts owed.

Conclusion

Navigating collections in Alabama requires a strict adherence to procedural rules and a strategic approach to litigation. Whether you are dealing with open accounts, contract disputes, or post-judgment enforcement, legal representation ensures that your rights as a creditor are protected and your recovery is maximized.

If you need assistance with a collections matter, please contact our office to schedule a consultation. We can review your case and determine the most appropriate legal course of action.

Disclaimer: This post is for informational purposes only and does not constitute legal advice. Collections law is fact-specific. If you are facing a collections dispute, please contact our office to discuss your specific situation.