Winning a civil court case is often the easiest part of obtaining a judgment against a debtor. The harder part is actually collecting. Successful collections can take years. Judgment creditors can invest more time and money than a judgment is worth. Therefore, heading into collections full throttle doesn’t serve most creditors well.
It is far better for creditors to step back and think things through before collection efforts begin in earnest. Generally speaking, debtors are given a certain amount of time to appeal before collections can begin. A standard rule of thumb is 30 days. During that initial delay, there are five things that creditors need to carefully consider:
1. The Debtor’s Ability to Pay
This may sound obvious, but creditors need to carefully consider a debtor’s ability to pay. Certain types of debtors are what the industry refers to as ‘judgment-proof’. What does it mean to be judgment-proof? For that we turn to Judgment Collectors, a collection agency that specializes in judgments in Utah, California, Texas, and several other states.
Judgment Collectors explains that being judgment-proof involves two key aspects: having insufficient resources to pay right now and no reasonable prospects for the future. It boils down to the old proverb of not being able to get blood from a stone. If a debtor truly cannot pay, there is not much a creditor can do about it.
2. Access to Resources
Next up, creditors need to carefully consider their access to collection resources. Resources include everything from proprietary databases to an actual budget. Unfortunately, insufficient resources lead to judgment creditors not putting enough effort into collection. After years of failure, they simply give up and write off the debt.
3. Staff Experience
Judgment creditors need to seriously consider the experience of the staff they will assign to the task. If collection is the bookkeeper’s responsibility, do they have any experience? The same question holds true for the company accountant. A lack of experience dictates turning collection over to an attorney rather than a collection agency.
As far as an attorney is concerned, a creditor must also consider how much collection work the company lawyer does. An attorney unwilling to give collection the same attention as other types of cases probably isn’t going to succeed.
4. Their Own Willingness
The next item on the list is the creditor’s own willingness to do what it takes to collect. This is important inasmuch as judgment creditors often need to play the bad guy in order to get what is owed to them. A creditor may have to garnish wages or bank accounts. It might be necessary to seize personal property from the debtor in order to satisfy the debt. Simply put, judgment collection can be uncomfortable.
5. The Chances of Bankruptcy
Last but not least is considering the chances of the debtor declaring bankruptcy. Certain types of debts cannot be discharged through bankruptcy, but most can – including the types of debts normally covered by civil judgments. If there is any inkling that a debtor could declare bankruptcy in the near future, it might not be worth trying to collect initially. It might be better to just step back and wait to see what the debtor does.
Collecting an outstanding judgment is not the easiest thing in the world to do. And in fact, collecting has its own baggage. Before a judgment creditor starts down that road, it is important to carefully consider what lies ahead. Thoughtful consideration of all the implications that come with judgment collection helps a creditor approach the task in the right frame of mind.