Imagine a small business owner taking a customer to court over unpaid invoices. The case concludes easily enough with a judgment rendered on behalf of the business owner. His deadbeat customer now owes him the unpaid invoices plus interest and extra money to cover his court and attorney’s fees. Now imagine he never collects. The debt in question is legal, but it’s not collectible.
Judgments are sometimes not collectable despite being legally recognized. As such, it is a wise idea to think things through before going to court. If you have already gone to court and won, there are some collectability issues to consider before collection efforts get underway in earnest.
1. The Likelihood of Future Challenges
Although it is very difficult to get a judgment vacated on appeal, it’s not impossible. Therefore, it is important to consider the likelihood of any future challenges to the case. Why? Because some states allow judgment creditors to begin collection efforts as soon as a judgment is entered by the court. Yet the losing party could have up to 180 days to appeal.
Imagine an appeal being filed on day 170. All collection efforts must cease. If the judgment is subsequently vacated, all of the time and effort already put into collection will have been wasted.
2. The Debtor’s Assets and Future Prospects
More often than not, enforcing a judgment is directly related to the debtor’s assets. A debtor with no assets and little hope for future prospects is considered judgment proof. There is nothing to go after. Furthermore, the chances of having anything to go after in the future are pretty slim. Is it worth the time, effort, and money to even attempt collection?
3. Judgment Jurisdiction
Next, it is important to consider the jurisdiction of the original judgment. Here’s why: let’s say the debtor owns assets in another jurisdiction. In order to go after those assets, the judgment has to be entered by the court clerk of that second jurisdiction.
According to Judgment Collectors, a Utah judgment collection agency a secondary issue is trying to collect from a debtor who moves away. Assuming that the debtor moves out of the original jurisdiction, the judgment has to be entered with the court in whatever county the debtor now resides. Collecting judgments in other jurisdictions is by no means impossible. But doing so just adds another layer of complexity.
4. A Collection Timeline
Judgment creditors should consider a collection timeline before getting started. As a creditor yourself, how long do you anticipate collection taking? Are you prepared to put in the necessary time? Will you be able to meet the deadlines for future court actions, like filing motions for writs of seizure?
5. Statutes of Limitation
Speaking of the collection timeline, judgments have statutes of limitation attached to them. The average time limit in most states is 7-10 years. Do you think your chances of successfully collecting within that time frame are reasonable? If you cannot get it done in time, you will either have to eat the loss or renew the judgment.
6. Collection Costs
Finally, there is the matter of collection costs. You will spend money to get paid. But how much? If your projected costs outweigh the likely amount you expect to receive, your decision is a no-brainer. Pursuing collection just is not worth it.
It is evident that judgment creditors need to consider whether or not their judgments are collectable before getting started. Better yet, a thorough assessment prior to going to court might reveal that litigation isn’t even worth it. That is just the way these things work.
