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Introduction
So, you won a
Court
case against an
ex-tenant or a maintenance vendor and they
owe you money. And, you
now know that the person who lost the court case is called the debtor and that
you, the winner, are called the creditor. Now what?
Winning your case in Small Claims Court
is
usually just the beginning and sometimes the easy part. Now comes the hard part - collecting your money.
Generally, Small Claims Courts won't
help you collect your judgment. Often, they
won't even give you much information about
how to do
it. One of the reasons
is that most courts already have enough to do with there
own work.
Abstract of
Judgment:
When the presiding judge signs a judgment, ask the Clerk of
the Court to provide an Abstract of Judgment. It will show, among other things, the
parties to the suit, the case number, the date and amount of judgment, and the post
judgment interest rate. The Abstract of Judgment will be helpful in future collection
efforts and it can be recorded in the real property records of every county where you
think the party who owes you money may have, or is likely to acquire real property.
Recording fees are nominal and a properly recorded and
indexed Abstract of Judgment will constitute a lien on any real property your debtor owns
in any county where the abstract is recorded. That even includes real property acquired
after the date of recording. Whenever the debtor attempts to mortgage or sell their
property, your lien will prevent a title company from issuing the clear title policy,
which is always required by lenders. Additionally, some states and many
counties now have their real property records available on the Internet.
That means that a background search for a loan, tenancy or even employment
may turn up your lien and provide new incentive for your debtor to pay you.
Do It Yourself or
Not?
Should you turn the debt over to a collection agency or an attorney rather than
do it yourself? The answer is almost always a resounding NO!
The proof of a judgment that you
got gives you many
legal rights and
numerous ways
by which to collect
your money. You have more rights and more ways than does a collection
agency. You can
file liens, seize bank accounts, force the sale of property,
garnish wages,
and more.
Collection agencies can only send out letters and make phone calls. In
general the ex-tenant who didn't pay his rent and/or trashed your property isn't
likely to respond to letters or phone calls from a collection
agency. Third, collection may actually take a long time, sometimes
many years, with interest continuing to accrue, probably at a much higher rate
than you could earn with the funds invested elsewhere. No collection
agency will actively pursue the matter for years. No matter how long it
takes, you have a chance of eventually collecting when the debtor someday needs
to clean up his credit, for example, to buy a house.
You could, of course hire an attorney and he
would have all the same powers as you do and you wouldn't have to do a much of
the
work. However, as you can probably guess, the rates charged by attorneys
makes it economically unfeasible to use one to collect debts of only a few
thousand dollars.
So, for purposes of this course, we assume that
you will collect your own debts, with maybe a little low-priced help as
will be discussed later.
Legal Considerations
The information we provide
applies to most jurisdictions of the United States. There are
some
differences from state to state, but most follow the Federal Fair Debt
Collection Practices Act, so the tools available to you are basically the same.
The main variations are in the terminology used by the Courts and in the
differences in their forms.
It is always
recommended and sometimes necessary to read the actual state law regarding
specific issues, in particular those that are not common to most states. In
the "old days" (more than 5 years ago) this meant traveling to the
nearest university with a law school, a trip to the Courthouse, or a visit to
the office of an attorney friend. Now we have the Internet providing laws at
every level of government that are easily accessible from your easy chair at home.
To make it even easier, we provide you with links
to sites where you can find the laws of your state as well as other
legal information.
Court Forms
Although we have some related forms
on our "Members Only" Forms Web, we do not provide the actual Court
forms used for collection in must jurisdictions. Any form you will use in
court should be obtained from the specific Court of
jurisdiction. Court forms are not only different from state to state, but
often
differ from county to county. To avoid problems with
clerks and judges,
you should
use the forms
that are provided by and for that Court. This will result in less hassle and potentially more help from
the clerks. And,
most importantly, you won't have made the judge mad at you from the beginning.
The Basic Collection Process
This lesson and
those that follow will provide the
information needed to
-
Locate the debtor
- Locate his assets
- Lien those assets
- Seize those assets
If it has been
quite some time since you were awarded the judgment, it might be
difficult to
locate the debtors
and their assets.
Often it is difficult even when you just got the judgment. However,
with adequate knowledge it can be done. Sometimes it is helpful or
even necessary to have professional
assistance in doing so and we will provide links to some of these
services.
There are only three parts of the process that you would want to hire out.
- Locating your debtor
- Doing an asset search
- Having a debtors exam
Actually, there are probably only two
parts, since the asset search and debtors exam should
reveal the same information,
providing
the debtors
tell the truth at the exam
where they will be under oath. For a really difficult
case, the costs of utilizing professional
help for these tasks are relatively inexpensive compared
to the time that will be saved. Using only these specialized services when
necessary is always much less costly than using a judgment
collector or collection attorney.
You will likely incur various expenses as
you proceed, but, as we'll discuss elsewhere, these costs can be added to the
original judgment amount. Thus, you will get your expenses back so long as
you eventually collect. Keeping this in mind, you may want to contract out
certain things. For example, you may need to have a company pull a credit
report for you. A credit report will often provide you with a substantial
quantity of information about your debtors and their assets, with some of it
being very relevant, for only few dollars.
You may
consider having an attorney represent you in a debtors examination to
find out what assets they have and about their income, place of employment, bank
account information, and more.
A word of caution however. Keep the amount
of your judgment in mind. Although the maximum amount of Small Claims
Court suits varies among states from $1,000 to $15,000, the maximum in most
states is $5,000 or less, so the amount that might be reasonably invested in
collecting a judgment is relatively low. Also, even though you should get
your expenses reimbursed if you collect, remember that the word is "if."
Accordingly, you will usually want to minimize your expenditures. Of the
three items that we recommended for possible outside help, the most expensive by
far will almost certainly be the use of an attorney for the debtor exam and this
will usually make sense only for relatively large judgments.
However, unless you really know the law and how
to handle uncooperative or belligerent debtors, it might be worth the cost.
Also, it removes you from the most obvious and potentially confrontational part
of the whole process. Finally, if the debtors are uncooperative, the
attorney's report of this to the Court will be much more productive than the
report of a layman. You should definitely shop around for the best deal,
keeping in mind that you want an attorney who is considerably experienced in
this specific job. Try to find one who will do it for a flat fee rather
than by the hour, but will put extra time at a reasonable per-hour charge in if
the debtor turns out to be difficult to deal with.
Doing
the collection yourself is certainly better than paying a judgment
collector one-half of your judgment to attempt to collect it for you.
Some
may be concerned about the danger of retribution by the debtor. As with
any matter that is confrontational by its nature, there is some risk of a debtor
retaliating against anyone who is trying to collect the debt. However, you
can operate so that you have little or no direct contact with the person and,
you have the law on your side. Most importantly, for the most part,
collection is handled through the Court and most direct contact will be by
personnel of the Court or of the sheriff's office.
In
most states, judgments are good for 10 years and are then renewable for another
10 years. If the debtors can't be found now or if you locate them and they
have no job or assets, all is not lost. You can keep checking back
periodically to determine if the situation has changed. You must remember
that interest is accruing on that debt at a rate of from 7 to 12 percent,
depending on which state you are in. The rate of return is often more than
you could earn on the debt amount invested elsewhere. You may, however,
have to consider your judgment to be a long-term investment. Sometimes, by
the time a debt is collected, the interest is more than the judgment. This
should provide you with incentive to keep up your collection efforts.
Again,
be sure to keep track of all expenses, as you will get them back when you do
finally collect.
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