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Krishna,
Sorry to hear about your kid getting bit by the dog and police not really doing anything about it. Similar thing happen to wife several years ago. She was walking my dog, Thor who was a puppy at the time when a dumbass neighbor left his screen door open and his two pit bulls attacked both my wife and my dog and they weren't even on his property. Fortunately, the guy heard the commotion and raced out and got the dogs off her before any real serious damage had been done to my wife and my puppy. Of course, we called our county Animal Control officer and he came out and did basically nothing except "played" with the pit bulls and came by to tell us he thought they were "nice dogs". Nevertheless, my wife suffered a sprained ankle and my dog suffered a broken rib in the attack so we presented the "neighbor" with a bill for my wife's ER visit, my dog's vet bill and the amount that my wife lost in wages missing work because of the sprained ankle. The neighbor, asshole that he was, refused to pay, saying something along the lines "how do I know that these amounts are right?" So, I said "fine, see in you court" and called my attorney. Took about 18 months or so, but finally his homeowner insurance paid off the claim which by that time also included the amount my attorney charged to handle the case. In addition, and I found this out later, his homeowner's insurance also threaten to drop him if he didn't get rid of the dogs (and he did).
FYI, anybody reading this, if you own a large dog, you might want to check with your insurance company on whether or not you're covered in case the dog bites somebody, lot of insurance companies nowadays have breed restrictions.
So Krishna, if I was you I would present the "crazy old dog lady" with a bill for all damages you and your son incurred in this dog attack. If she doesn't pay, then hire an attorney and sue. Also, you might to check with your city/county commisioner and see whether or not there some regulations concerning the number of dogs that one person can have on their property. If the "crazy old dog lady" is in violation, then I would file a complaint with the city/county and she WILL be served with a summons.
Good Luck, Krishna and I hope it all works out.