A lawsuit should be your last resort. Before you sue, talk with your opponent and try to negotiate a mutually beneficial compromise.

Lawsuits should be last resorts. They devour time, money, and energy. And lawsuits -- even the small claims variety -- tend to polarize disagreements into win/lose propositions, making mutually beneficial compromise difficult.

Before filing a lawsuit, it almost always makes sense to look for a solution out of court. This is particularly true in situations where the other party is someone you'll have to deal with in the future, such as:

• a neighbor
• a former friend
• a relative, or
• a good customer.

For example, an orthodontist who depends on referrals for most new customers will want to think twice before suing a patient who has refused to pay a bill, if the patient is genuinely upset (whether rightly or wrongly) about the services received. Even if the orthodontist wins in court, this is likely to turn the former patient into a vocal enemy -- one who may literally bad-mouth him from one end of town to the other.

Offer to Compromise

Start by attempting to negotiate a compromise with the other party. Before you reach for pen and paper, try to negotiate directly with the person, preferably in person.

Know that any offer of compromise, made either orally or in writing, does not legally bind you to sue for that amount if the compromise is not accepted. For example, you could make an oral or written demand for $20,000, then offer to compromise for $15,000 and, if your compromise offer is turned down, still sue for the $20,000.

Come Up With a Starting Settlement Amount

If you are the potential plaintiff: Start by offering to shave about 20% off your original demand, in exchange for a settlement. Any less and you won't be taken seriously. Any more and you're giving away too much too soon.