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Turning Paper Into Cash:
10 Tips on Collecting After You Win a Lawsuit

by Lisa Goldoftas
Copyright © 1991 Nolo Press

After the owners of a car repair shop do $350 of sloppy repair work and refuse to refund your money, you take them to small claims court. You come out of court with a smile and a court judgment--a piece of paper issued by the court that says how much you won in the lawsuit. But your elation may quickly turn to dismay when you realize that you still must collect the $350 from the repair shop. The court isn't about to do it for you.

If you find yourself in a similar situation, don't despair. You can collect on your own if you know where the debtor is and what assets are available. Here are ten tried-and-true tips to guide you.

1. Consider Settling for Less

If the debtor is willing to pay a portion of the judgment immediately if you will drop your claim for the rest, or wants to barter goods or services instead of money, don't reject the offer out of hand. You have the legal right to the full judgment amount, but collection can take years. It can also be expensive and frustrating. In short, you may prefer the proverbial bird in the hand to the possibly larger one that is still in the bush.

2. Get the Debtor Involved in Problem-Solving

There's a story about a man who was pacing at night, worried because he couldn't pay his neighbor a debt that was due the next day. When his wife heard about the problem, she called the neighbor, woke him up and said, "John can't pay--he doesn't have the money." Then she hung up, turned to her husband and said, "Go to sleep now. Let him do the pacing."

The moral of the story? Let the debtor do some of the pacing--and legwork--for you. If the debtor is willing to pay but just doesn't think the cash is available, make some constructive suggestions. Resources the debtor may not have thought of include ear-marked bank accounts--IRAs or money set aside for vacation or education, credit card cash advances, loans from relatives and money from a garage sale.

3. Know Your Legal Rights

Once you win a lawsuit, you have lots of different ways to press the debtor for payment of the judgment. For starters, you can report the judgment to a credit reporting agency. An unpaid judgment is a serious negative on the debtor's credit report, so that may encourage payment. When you report the judgment, however, stick to the bare facts and do not bad-mouth the debtor.

You can also pursue payment. Bank accounts, business income and a portion of a debtor's wages are commonly seized to satisfy court judgments. If that isn't enough, you may be able to seize royalties, money others owe the debtor, valuable personal property or real estate. In special circumstances, you may be entitled to payment from a debtor's spouse.

One promising long-term technique is to file liens on the debtor's property. A lien is a legal assertion that you have a claim for a specific amount against certain property. You get paid the amount of your claim when the property is sold or refinanced and the new owner or lender wants clear title. In some states, a lien is automatically created when the court enters its judgment. In others, you must file a document to create a lien. Liens may not produce money right away, but in the words of a former judge, they are "little money machines," because they are easy to create and can pay off your judgment without further effort on your part.

4. Pursue Easy-to-Reach Assets First

When you begin, concentrate on collection methods that tend to be effective and relatively inexpensive. Establish liens, negotiate voluntary payments, collect from wages, seize bank accounts and intercept money paid to a debtor's business. Unless you anticipate that extreme collection measures will push the debtor to pay up, you'll probably save yourself a lot of trouble if you avoid forcing a sale of the debtor's vehicles, house, business assets or personal property.

5. Know the Legal Limits

Some types of property the debtor owns are not fair game--they are exempt from judgment collection efforts under state law. Creditors cannot seize more than a certain amount of a debtor's wages--often 25%. Also off-limits are a debtor's food, clothing and other necessities.

A judgment debtor is also legally protected from harassment and public embarrassment by creditors. Don't threaten, harass, humiliate or intimidate the debtor; it is unnecessary and counterproductive--it could even get you sued. And don't talk about the debtor to others, with the exception of credit-reporting agencies and officials directly involved in your collection efforts.

6. Practice Patience

If you think in terms of years rather than months, you can develop a sound strategy that is likely to produce full payment of your judgment. Judgments last anywhere from three to 20 years, depending on the state, and you usually can renew an uncollected judgment indefinitely. While the judgment remains unpaid, it accumulates interest--often at 10% to 12% per year. Eventually, the debtor is likely to acquire some assets that can be used to pay off the judgment.

7. Keep Track of the Debtor

Has the debtor moved recently? Purchased a boat? Lost a job or fallen into hard times? It's important to keep tabs on the debtor so you know what assets to go after and when.

8. Remember That Timing Is Everything

Many collection techniques require you to act fast--before other creditors do and before the debtor gets wind of your plans. Timing is important in other ways, too. For example, suppose the debtor gets paid at the beginning of each month and deposits the money in a checking account. If you try to collect at the end of the month, not only will you come up empty-handed, but you'll temporarily lose the collection fees you fronted. And the debtor is almost certain to move the account.

9. Hire Experts Sparingly

If you have access to good self-help books that explain how to collect a court judgment, a small claims advisor or helpful court clerk, don't turn your judgment over to a collection agency or lawyer, unless a lawyer won the case and has a legal right to collect a fee. Farming out your judgment means you'll bid farewell to a third to a half of what you're owed. Of course, if you're pretty sure you'll never recover a cent on your own or don't want to spend time and effort collecting, half the amount is better than none.

If your main problem is finding out what the judgment debtor owns, you may be able to get that information for a reasonable fee from a computer database search company. These companies are often listed in the Yellow Pages; they can tell you where people live and what real estate, other property or businesses they own. Other times, it takes plain hard work, perhaps by a skilled investigator.

10. Know When To Quit

Obviously, perseverance is a virtue when you're trying to get a court judgment paid. Even if a debtor declares bankruptcy or dies, you maybe be entitled to file a claim and be paid all or part of your judgment. But trying to collect a judgment can be like gambling too long--you want to keep going because maybe this time you'll recoup your losses. But if you spend money on futile collection techniques--tapping bank accounts that are empty, seizing property with no value--you simply throw good money after bad.

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The selected articles originally appeared in the Nolo News and are Copyright © Nolo Press 1996 and reproduced here with permission. If you find them of value, we encourage you to visit Nolo Press at their web site http://www.nolo.com. If you wish to post them on-line or otherwise distribute them, first read Nolo's copyright policy.

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