COLLECTING A SMALL CLAIMS COURT JUDGMENT

COLLECTING A SMALL CLAIMS COURT JUDGMENT: YOU'RE ON YOUR OWN
by Lisa Goldoftas and Stephen Elias

If you win your small claims case, you'll probably feel vindicated by
your day in court. The judge saw things your way and awarded you a
judgment against the defendant. But in the weeks and months that follow,
post-trial jubilation may turn to surprise and then dismay: surprise that
the court does nothing to make sure the defendant pays you, and dismay at
the time, expense, and work it takes for you to do it.

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). The procedural trail takes different twists
and turns in every state, but the following tips should be helpful
everywhere.

1. Don't rush it.

Don't be in a hurry to start bugging the defendant to pay up. Most small
claims courts allow a losing defendant to appeal, so wait until the
appeal deadline (usually 30 days or so) passes before asking for your
money.  Otherwise, your pushing may nudge the defendant into filing an
appeal.  Appeals threaten your collection chances for two reasons: first,
you may lose the appeal, and second, while the appeal is pending, the
defendant doesn't have to pay you a penny.

2. Don't forget to ask.

A surprising number of debtors will pay once a court judgment is issued -
- if you ask for the money. A polite written request often does wonders,
especially when it reminds the debtor that an unpaid judgment will
probably show up in the debtor's credit file. You can also mention, in
general terms, that you plan to take legal measures to collect if payment
isn't forthcoming. But don't specify what measures you plan to take --for
instance, garnish the debtor's wages or seize a bank account -- since
this will give a wary debtor time to thwart your plans.

3. Treat the judgment as a long-term investment.

Every state authorizes you to collect interest, commonly 8% to 12%
annually, on a judgment. Viewed as a long-term, uninsured investment,
court judgments can pay off handsomely. Compared to limited partnerships,
start-up companies and even many stocks, a court judgment has relatively
low risk and moderate performance.

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 -- years from now, the debtor could win the
lottery, inherit a bundle, or write a bestseller. At that auspicious
time, a renewed judgment could be worth a lot with the accrued interest
thrown in.

4. Think through a collection strategy.

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. For example, going after one debtor's wages
might pay off the judgment, but might prompt another person to file for
bankruptcy.

As a general rule, the easiest and most effective collection methods to
collect a small claims judgment include:

   * getting the debtor to pay voluntarily
   * garnishing wages
   * seizing money from bank accounts or safe-deposit boxes
   * filing a lien (legal claim) against real estate

Two more techniques are a little more complicated, but can also pay off:

   * collecting from a business debtor's cash register ("till tap")
   * seizing and selling valuable property such as cars, airplanes or
jewelry

5. Bank on the future by creating liens.

An important step in any collection plan is to establish liens (legal
claims) against the judgment debtor's real estate and business property.
Liens put you in the best position to get paid if the debtor declares
bankruptcy or acquires, sells, refinances, or transfers property.

6. Do your homework.

The more you know about the business or person who owes you money, the
more likely you are to get paid. So here's your opportunity to be a
private detective of sorts, and keep tabs on the debtor's assets,
lifestyle, and projected financial situation.

Here is a little test: Would you know if the debtor moved, got married or
divorced, expanded or sold a business, refinanced real estate, or
inherited money? Do you know whether or not the debtor cares about his or
her credit rating? Do you know what could pressure the debtor into
bankruptcy?

If you can't answer "yes" to every one of these questions, you've got
work to do. Periodically write or telephone the person who owes you
money. Keep in touch with business contacts who also know the debtor.

7. Know when to call it quits.

You've heard the warning, "Don't throw good money after bad." There is
much you can do to collect a judgment, but these efforts cost money. And
although most judgment collection costs are recoverable, that won't do
you any good if you never catch up with the judgment debtor. So keep a
sharp eye on how much you are spending trying to collect -- you may not
get it back.

Copyright © 1995 Nolo Press
This article originally appeared in the Fall 1995 issue of the Nolo News.
Lisa Goldoftas and attorney Steve Elias are co-authors of Collect Your
Court Judgment in California (Nolo Press).  You may copy this article so
long as you include this copyright notice.

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