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7/22/08

Small Claims Court Judgments

If you win your small claims case, you'll probably feel initial happiness because the judge saw things your way and awarded you a judgment against the defendant. But in the weeks and months that follow, that post-trial jubilation may turn to surprise and then anger when you discover that the court does nothing to make sure that the defendant pays you.  At this point you will be totally on your own to collect anything, something that can take a lot of time, work and expense and even then you might not be able to collect.

In order to get paid, you (or someone you hire to do it for you) must follow specific legal procedures to get money or other assets from the loser (called the judgment debtor). This procedure can vary from state to state and municipality to municipality.  You can’t immediately start to prod the defendant to pay up because most small claims courts allow a losing defendant to appeal (usually 30 days or so).  By doing so might encourage the defendant into filing an appeal.  Appeals threaten your collection chances.  First of all you may lose the appeal, and secondly, while the appeal is pending the defendant doesn’t have to pay you anything.

A number of debtors will pay once a court judgment is issued if you simply ask for the money.  A polite written request often works, especially when it reminds the debtor how refusal to pay can negatively affect his credit rating. You can also mention that you plan to take legal measures to collect if payment isn't forthcoming.  However, don't specify what measures you plan to take, for instance, garnishing the debtor's wages or seizing a bank account, since this will give a wary debtor time to thwart your plans.

Treat the judgment as a long-term investment as every state authorizes you to collect interest, commonly 8% to 12% annually.  In most states, a judgment is valid from 5 to 10 years (the range is from 3 to 20 years) and can be easily renewed. Renew it, even if you don't think you'll ever get paid, because years from now the debtor could win the
lottery, inherit a lot of money, or write a bestseller. If this should in fact happen, a renewed judgment could be worth a lot with the accumulated interest thrown in.

There is no one best collection approach. Your strategy must depend on the debtor's assets and income and the cost of the collection methods available in your state. The easiest and most effective collection methods to collect a small claims judgment include getting the debtor to pay voluntarily, garnishing his wages, seizing money from bank accounts and filing a lien against real estate or other property.  The more you know about a person the more likely you are to get paid.

Sometimes a debtor will refuse to pay under any circumstances and it would probably be worthwhile in a case like this to hire the services of a judgment collection agency. They have the resources to track down assets at minimal cost to them, whereas an individual might incur considerable expense by doing the same thing. Generally a reputable company will have you assign your judgment to them on contingency, they front all expenses and take a percentage of the amount collected. 

There may come a time when additional pursuit of payment becomes futile. If the debtor has gone out of business, disappeared, or you know that he or she will likely never be able to pay you anything (either now or in the future), your best option may be to write off the debt so that you aren’t throwing good money after bad.

Roberta Rosengarten, Slightly Creaky

(See the Consumer Archives for previous articles.)