Abstract

Legal collections continue to play a critical role in the overall strategy of many debt buyers. However, as the cost of litigation increases and portfolio performance faces tighter margins, firms must rethink how they decide which accounts to litigate. This article outlines the necessity of data-driven litigation cost modeling in debt buying, explores the role of law firm partnerships, and demonstrates how predictive decisioning drives long-term recovery performance and risk mitigation.

Introduction: The Litigation Cost Dilemma

For most debt buyers, litigation is both a risk and a return opportunity. Done right, it creates long-term value. Done wrong, it becomes a sunk cost. As someone who has worked on the debt buying side and now represents a firm working directly with creditors and buyers, I’ve seen litigation succeed—and fail—based on a single factor: whether it was backed by good data.

The traditional approach of sending accounts to litigation based solely on balance thresholds no longer works. In fact, it never really did. Balance is not a proxy for collectability. It’s an input—not a decision. In today’s compliance-heavy, cost-sensitive environment, a more precise methodology is required.

Modeling Litigation Costs with Data Precision

Litigation cost modeling isn’t just about forecasting expenses. It’s about identifying which accounts are most likely to liquidate once a judgment is secured. That means going beyond surface-level metrics and incorporating data points such as verified employment, banking information, address accuracy, contact history, and asset indicators.

The modern legal collections strategy must include:

  • A clearly defined set of qualification criteria
  • A data-enriched account scoring process
  • An understanding of fixed and variable litigation costs
  • Timelines and thresholds for return on cost (ROC) modeling

For law firms, the key challenge is aligning with debt buyers who are operating under a variety of funding structures—from private capital and friends-and-family models to institutional syndicated credit lines. Each comes with different pressures and expectations for performance and liquidity.

Structuring Partnerships That Drive Recovery

One of the most overlooked elements of legal strategy is the structure of the law firm relationship. When communication is vague or misaligned, recovery suffers.

Strong partnerships between debt buyers and firms require:

  • Shared expectations around suit criteria
  • Defined roles for who pays and recoups court costs
  • Proactive dialogue about account volume fluctuations
  • Real-time feedback loops on litigation outcomes

Debt buyers must also understand that placing accounts isn’t outsourcing accountability. The law firm may file and prosecute suits, but the buyer retains the risk and the upside. As such, they need to remain engaged in the strategy and flexible when market or portfolio conditions shift.

Predictive Scoring and Post-Judgment Liquidation

Filing a lawsuit is not the finish line. In fact, it’s the starting point for a second, more difficult challenge: post-judgment liquidation. The true test of a litigation strategy is not how many judgments are obtained, but how many are actually collected.

This phase benefits enormously from:

  • Waterfall automation tools
  • Supplementary data enrichment
  • Consistent asset discovery practices
  • Visibility into employer and bank account updates

Buyers who actively manage this process and equip their law firms with updated data are more likely to recover the full value of their judgments. Those who “set it and forget it” tend to see recoveries stall—or fail altogether.

The Risk of Overcommitting to Litigation Volume

Some buyers and their investors view litigation as a way to scale up portfolio performance. However, when this strategy is executed without the appropriate data guardrails or funding discipline, it can quickly backfire. I’ve seen buyers overcommit to legal volume, only to run out of cash midway through court cost deployment. Others mistakenly sue entire portfolios based on outdated address files, leading to failed service and regulatory risk.

Litigation is powerful when selective. High performance comes not from suing everything—but from suing the right things.

Rethinking the Litigation Strategy for Long-Term Success

Legal recovery should be managed with the same strategic precision as any other channel. That means evaluating performance by:

  • Cost per judgment
  • Recovery per dollar sued
  • Time to first payment post-suit
  • Net liquidation at 6, 12, and 24 months

It also means allowing for iteration. No model is perfect. Debt buyers should evaluate litigation placement outcomes regularly and adjust suit criteria accordingly.

Looking ahead, I believe law firms that invest in data infrastructure, develop flexible litigation models, and prioritize transparency with their clients will continue to grow their value in the receivables space.

Conclusion

Litigation cost modeling in debt buying isn’t just about math—it’s about strategy. It’s about knowing your data, understanding your partners, and building a model that balances speed, scale, and compliance.

As the market continues to evolve, buyers and firms that adopt a data-first mindset will reduce waste, increase recovery, and mitigate risk. The era of litigation as a blunt instrument is over. What replaces it is a smarter, sharper, and more strategic legal strategy.

Author Bio

Neil Mastellone is a business development executive at Velo Law, a creditors’ rights and collections firm based in Michigan. With nearly two decades of experience across debt buying, compliance consulting, and vendor operations, Neil brings a cross-functional perspective to legal collections strategy, litigation cost modeling, and law firm performance management.