Legal Landscape:
What to Do If You Don’t Get Paid

Beth Gigante Klingenstein

MTNA Business Digest, Volume 2, Issue 2
January 2023

What are the options if a student or family does not pay the tuition they owe? We all hope that this will never occur, but if it does, there are better choices than just “swallowing the loss.”

Be Proactive

It is important to be proactive in order to protect ourselves against such an event occurring in the first place. We need a clear policy statement that includes the amount due, when it is due and how it is to be paid. It is also important to have the guardian/adult student sign this policy, stating that they have read and agree to the policies, whether the policy statement is an online or paper document. Their consent is then verified in writing and each party should have online access to, or a paper copy of, the signed document. I believe it is also important to review that policy statement verbally with each new family before the document is actually signed, rather than trusting them to read it in full on their own. How many times have we each signed something or clicked “I have read and agree” without reading the full document? We don’t want parents to be surprised about any of our policies later on or insist something wasn’t made clear.

First Steps

There is a difference between a late payment and not getting paid at all. Late payments can be addressed in the policy statement. For example, a late fee can be charged for payments received after a certain date. I used to send an invoice that listed the overdue amount plus the late fee that would be automatically deducted from the student’s book and fee deposit. If that didn’t work, the next step was to send a gently worded reminder in a letter format (rather than invoice format). I always kept a copy of all written communications. At this point, it might also be valuable to have a discussion with the guardian/adult student. Is there a problem the family is going through such as a loss of job, divorce or death that would perhaps warrant some leniency regarding payment? If the family is experiencing difficulty, there are a few options to consider:

• We can consider bartering for lessons (keeping in mind that taxes still need to be paid). Bartering could include services such as a student mowing the lawn or babysitting or a parent offering accounting services. Barter dollars (the fair market value of the goods and services we received) are taxed as if they are cash. We can owe income tax or self-employment tax on any bartered income.
• We can offer a scholarship, either temporary or permanent, if we don’t want to lose the student. When offering a scholarship, a good option is to partner with MusicLink Foundation. MusicLink will not assist with funding the scholarship, but can offer valuable discounts or additional resources to students in need.

Next steps

But what if the family does not verify any financial need and is not responding to the initial requests for payment? At that point, written communications need to become more firmly worded. Again, it is important to keep a copy of all signed and dated invoices/written notices that are sent. Please note that I once again mention written communications. Verbal conversations cannot be documented as successfully. A conversation with mom before she drives away will not hold up in court as strongly as a copy of a signed, dated, written communication.

If increasingly stern communications have been unsuccessful, the final communication is called a final request or payment demand letter. That letter gives a final date by which the payment must be made and the consequences if that does not occur. Such a letter might be sent through certified or registered mail, where receipt can be verified. If that letter is ignored, it may be time for more serious action. At this point, most likely, lessons have been terminated.

Small Claims Court

It is possible to go to small claims court to pursue money that is owed to you. No one wants to take a family to court, but we should not allow ourselves to lose hundreds of dollars in unpaid tuition. I have taken families to small claims court twice. In both cases, the families ignored my letters (the second family even refusing to sign for a certified letter). In both cases, as soon as the family received notice from the court (the second family needing to be served by the sheriff), they were in my office paying within the hour. Neither wanted to actually have the case heard in court. And I knew that if we had actually ended up in court, I would have won. I had copies of all the signed documents: the policy statement where they signed that they understood and agreed to my policies (including my clearly worded payment policies), the initial overdue invoice, the signed and dated letters I had sent to them, and the final request letter I had sent, stating that if I didn’t hear from them by a certain date, I would take the case to small claims court. I was not required to pay any legal fees in either case.

Keep in mind that every community/state has its own process for small claims court. You may or may not incur legal fees. Depending on your location, there will be various limits to the minimum and the maximum amount that can be sought. It is important to have good documentation of every communication you have concerning the nonpayment regardless of where you live.

Collection Agency

When considering using a collection agency, it is important to understand that those owing money do not have to respond to a collection agency. It is not illegal if they don’t, BUT the collection agency can take them to court and sue them for the funds. The collection agency may or may not be willing to go to court for what is owed. It is also important to know that the average fee charged by a debt collection agency is 20–40%. That is a substantial percentage of what is collected, but better than receiving no payment at all.

Civil Court, Mediation, Binding Arbitration

Civil court is another option. In civil court, one person sues another because of a dispute. If you take your case to civil court and win, the student/family would be ordered to pay the money owed. To win such a case, you would need strong evidence, so the signed documents mentioned earlier are extremely important. Civil court requires a lawyer (unless you chose to represent yourself) although there are some agencies that offer legal assistance to those in need. Taking your unpaid tuition to civil court is a big process—maybe too big. It would ultimately involve a judge or jury and legal fees.

An option offered by civil courts (as well as small claims courts) is mediation. Both parties can agree to use a mediator and to abide by the mediation agreement that is reached rather than going in front of a judge or jury. If mediation is chosen, the mediator reaches a decision, and a written mediation agreement must be signed by both parties. An example of such an agreement might be that both parties agree to a payment plan for the family to repay what is owed. Mediation can be court ordered or independently sought—in either case, the agreement needs to be approved by a judge/court of law to be legally binding. Another option is arbitration. Voluntary arbitration means that the parties voluntarily agree to bring their dispute to an arbiter and abide by what is decided. There are two kinds of voluntary arbitration—one that is agreed to before any dispute and one that is decided on after a dispute arises. If you have a statement in your studio policy declaring that any disagreement over finances will be settled by arbitration (and you and the family both sign that statement), that is an example of pre-dispute arbitration. You are then bound to settle your disagreements in this manner. A post-arbitration agreement would be if both parties decide after the problem arises that they wish to use an arbiter to settle the dispute rather than go to court.

In Closing

I am not a lawyer, nor have I ever played one on TV, but I do know there are ways for us to avoid being taken advantage of by families who do not respect their agreement to pay for our services. Hopefully, when working with such families, you will be able to avoid taking legal action. But should you feel such action is necessary, I would leave you with a few parting thoughts. First, don’t wait too long before trying to collect. There is a statute of limitation (which varies by state) for settling such disputes. Additionally, the longer you wait, the muddier your recollections can become, and the more difficult it may be to find and organize past documents. Finally, I would do further research into the options you are considering to be certain what will work best for you.

Pursuing tuition that is owed to us is not something that should cause hesitation or embarrassment. Rather, it demonstrates pride in our profession and indicates that we value our worth.

Resources:

Barter dollars:
https://www.wolterskluwer.com/en/expert-insights/irs-cautions-bartering-transactions-are-taxable-transactions

Civil court:
https://www.uscourts.gov/about-federal-courts/types-cases/civil-cases

Voluntary mediation:
https://bathweg.com/voluntary-mediation-the-key-to-successful-dispute-resolution/

Binding arbitration:
https://www.investopedia.com/terms/m/mandatory-binding-arbitration.asp

Arbitration:
https://thebusinessprofessor.com/en_US/criminal-civil-law/statutorily-mandated-arbitration

Beth Gigante Klingenstein, NCTM, is a nationally renowned author and presenter. Recently retired from a career dedicated to teaching and arts administration, she continues to embrace her life-long interest in the business side of teaching.