It’s pretty clear that when you win a judgment in small claims court, the person or business that owes you money (called the “judgment debtor”) is supposed to make good on the obligation. But it doesn’t always happen that way. Some judgment debtors refuse to pay. You aren’t destined to be left empty-handed, though. You can take steps to force the debtor to pay the amount you’re owed.
(To learn how to prepare your case, read Success In Small Claims Court.)
Once you receive your judgment, the judgment debtor should make an effort to pay it off. If the debtor fails to pay as required, you can take advantage of options that are in place to help you collect the funds.
Keep in mind that it’s a good idea to wait until after the appeal period passes (a judgment debtor can contest the small claims award). That way, you won’t collect money that you might have to return later.
Potential Collection Problems
Having a judgment in hand doesn’t guarantee that you’ll be able to collect. Here are a few roadblocks that you’ll want to consider—or at least be aware of—before incurring collection costs.
- Is the debtor judgment proof? Hopefully, your judgment debtor will have assets that you can use to pay off the debt. However, someone without a job and little property might be protected from collection, or “judgment proof.”
- Can the debtor protect all assets? A debtor can keep—or “exempt”—property needed to work and live. Debt collectors can’t reach exempt property. For instance, most states allow residents to keep household furnishings, clothing, and a modest car. Debtors can protect a certain amount of wages, as well. If the judgment debtor is low-income, there might not be anything left over for you.
- What if the debtor files for bankruptcy? The quickest way for a judgment debtor to thwart your collection attempts is to file for bankruptcy. Once filed, the court issues an order called the “automatic stay” prohibiting debt collection activities. Instead, you’ll have to get in line at the bankruptcy court along with other creditors.
(Learn more about bankruptcy ramifications in Personal Bankruptcy and Court Judgments.)
Finding Assets: The Debtor’s Examination
If you’re not sure whether the judgment debtor has assets, you can ask the debtor directly. You’ll file paperwork asking the court to order the judgment debtor back to court. If granted, you’ll be able to ask financial questions under oath, such as:
- Where do you work?
- How much do you make?
- Do you own any property?
- How much is your property worth?
- Do you own a business?
- What is the value of the business?
You can require the debtor to bring financial documents to the examination, too. For instance, you can subpoena things such as bank statements and paycheck stubs.
The questioning process usually takes place in the hallway outside the courtroom. If the debtor refuses to respond, you’ll let the judge know. The judge will decide whether the debtor must answer.
Creating Your Collection Strategy
If the debtor has collectible assets, you’re in luck. Here are the primary tools that you can use to go after the judgment debtor’s nonexempt assets.
Recording the Judgment
Many creditors file the judgment (or an abstract) with the recorder’s office as soon as possible. Why? Because once recorded, the filing creates a lien on the property that secures the payment and the judgment will get paid out of any real estate sales proceeds. If the debtor sells a house, vacation home, or another type of real property, you’ll receive a check.
Not only does recording the judgment increase the likelihood of being paid in the future, but the paperwork is also relatively inexpensive to file. Most recorder’s offices post instructions and costs on their websites. It’s important to record the judgment everywhere the debtor might own real estate.
Most judgment creditors look for a readily available source of cash to pay off the judgment. Here are two techniques that are economical and yield results quickly.
- Wage garnishment. You’ll request the garnishment by delivering paperwork to the sheriff or responsible agency. An officer will forward it to the employer. The employer notifies the employee and deducts funds after the waiting period required by your state elapses. After receiving the funds, the enforcement agency delivers them to the judgment creditor.
- Bank account levy. After you provide the necessary documents to the proper agency (including branch location information—you must explain where to find the funds), an officer will give the paperwork to the bank. If there’s money in the account that’s subject to levy, you’ll be forwarded the funds.
You can ask the sheriff to recover property and sell it at auction. If the judgment debtor owes money on the property, that creditor must be paid in full before you’ll receive any funds.
- Real estate. You can instruct an officer to take and sell real estate at auction. Any outstanding mortgages get paid first. You’ll receive the remaining amount. The procedure is costly and can take time. It’s best used when a significant amount of equity exists.
- Personal property. Property other than real estate (called “personal property”) is also subject to seizure and auction. Keep in mind that required storage costs are expensive and many people don’t own property valuable enough to warrant using this technique.
Recovering Business Assets
If the judgment is in the name of a company, or if the judgment debtor owns a business, you’ll have additional collection opportunities.
- Till tap. An officer will visit the establishment and take the cash register funds for the benefit of the judgment creditor.
- Keeper. An officer remains in the business for an extended period, takes all of the money paid by customers, and forwards it to the judgment creditor.
Your court judgment won’t be enough to initiate the collection process. You must fill out further paperwork. For instance, you might need:
- an abstract of judgment (a shortened version of the judgment)
- a writ of execution (for a garnishment or levy)
- a writ of possession (to obtain property), or
- a similar form that’s specific to your state.
The paperwork lists the amount of the judgment, fees, and accumulated interest so that you can collect what’s owed. Additionally, each will likely have court seal affixed to it to prove that it’s authentic. The paperwork isn’t hard to complete, so don’t be put off by the odd names. You’ll likely find detailed instructions on the websites of both the court and the sheriff.
(If you’d like to read more about this subject, see Small Claims Court: Paying a Judgment.)
Questions for Your Attorney
- Is the judgment debtor worth pursuing?
- How much time do I have to enforce the judgment in my state?
- Can you collect the judgment on my behalf?