What a huge unfortunate mess. Unfortunatly I think this is something you are just going to have to learn from and let go. You will undoubtably spend substantially more trying to get your money from this family, but in reality you can't get blood from a stone. A deposit should always be taken regardless of who you are providing care to or who refers them. Without it, you are leaving yourself open to situations like this. It is a complete waste of time contacting the police as it isn't anything they can deal with. As for a lawyer, I'd save my money. The lawyer will initially write a letter but that's already going to run you $100 and this really isn't a case for a lawyer more for small claims court which again is a lot of money, time and paperwork.
If there is a daycare providers association in your area that you can inform of this lady then I would definitely say do that. The more people who are aware of this family the better to prevent this from happening to others. I would also let Child and family services know. I don't think theres anything they can actually do, but if they have the incident on file and their names come up again it will help the case.
POOR CHILD!! I hope, I really do hope that someone can step into this situation and help the family. All they are doing are setting this child up for a rough time. Also, what on earth was your neighbour doing recommending this family to you??? Do they actually know them, or just know OF them??
I am so sorry this happened to you. I wouldn't want to have to deal with it, but as far as payment goes, if at pick up on the first day I had no money, then I wouldn't have allowed them to owe me any more money by allowing them to come additional days until they had paid me.

































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