While filing a lawsuit may feel like a drastic measure, in some cases merely threatening a lawsuit is enough to convince a business or individual that a matter must be taken seriously. Typically, an individual considering legal action will first send a formal demand letter, hoping that the recipient of the letter will decide to resolve the situation amicably and without involving the courts. If the demand letter does not produce results, a lawsuit can then be contemplated.
The purpose of a demand letter is to formally demand payment, and to let the recipient know the seriousness of the matter and that failure to make payment will result in legal action or collections. A demand letter describes why payment is owed and makes clear that ignoring the issue is not advisable. A successful demand letter is able to convince the other party that the easiest and cheapest resolution would be to pay its debt, or at least enter into negotiations.
After a demand letter has been sent and does not result in a satisfactory response, an individual may file a lawsuit with the court in the hopes that the court will award a judgment against the other party. In most states, a lawsuit begins with a complaint describing the issue, to which the other party must respond. While someone filing a lawsuit for a significant sum would typically hire an attorney, smaller claims often -- and sometimes by law -- are handled without attorneys in small claims court.
Unless a situation has reached the point where any type of written communication would be a waste of time, it usually makes sense to send a demand letter before filing a lawsuit. When using an attorney, it is far cheaper to send a demand letter than it is to file a legal complaint and proceed with a lawsuit. Even if an attorney is not involved, far less time and effort are required to send a demand letter than to file a lawsuit.
While hiring an attorney will add significantly to the cost of writing a demand letter or filing a lawsuit, there are also significant advantages to having a lawyer involved. Lawyers have experience writing demand letters, and will know how to target a letter to maximize the chances of getting a satisfactory response. A demand letter from an attorney is also more likely to be taken seriously by the recipient. While lawyers aren't generally allowed in small claims court, filing a standard lawsuit without an attorney is very difficult, especially for someone without legal experience.