Collecting on Judgements

Last month, Sarah Pavlik wrote about Small Claims Court and the process of converting a claim into an actual judgment.  But getting a judgment doesn’t mean that the judgment will get paid.  To get paid, you have to collect on the judgment.  Typically, the collection process is more difficult than actually getting the judgment.

Before discussing the collection process, it’s important to understand that there are steps that can be taken in advance to make the entire process easier.

First, all business owners have to take a close look at their documents which create accounts receivables or other claims. In some situations, oral debts can be difficult to collect. Whenever possible, you should have some written evidence indicating that money is due and owing from the transaction. A written invoice, signed by a customer, will often be sufficient. Or, a more formal contract may be warranted depending on the circumstances. Sometimes, one hundred words or less might be sufficient to properly paper the transaction.

There is a second, and often more important, reason for having written evidence of the debt. In Illinois, the prevailing party in a lawsuit is not entitled to attorneys’ fees unless provided for by statute or in a written contract.  In most situations, the typical business owner will not be able to rely on a statute to get attorneys’ fees. The savvy business owner or operator, however, uses a written document, signed by the customer, in which the customer agrees to pay reasonable attorneys’ fees and costs in the event litigation is needed to collect a debt. Absent such a provision, it is often not economically practical for a business to collect on a debt.

Now that you have your judgment, what can you do with it?

First, don’t be too worried if it takes some time to actually collect. Judgments carry interest after the date they are entered at the rate of 9% a year.

Second, what actions can you take to convert the judgment to cold, hard cash?

Judgments can be recorded with the County Recorder.  A recorded judgment acts as a lien against any real property owned by the judgment debtor in that particular county, just like a tax lien, mechanics lien or mortgage.  With virtually every county in Illinois having an online database to search for property owners, it’s very easy to determine exactly where a debtor owns property.  For Sangamon County, the link is:

http://tax.co.sangamon.il.us/SangamonCountyWeb/app/searchByParcelNumber.action

Although it may take several years, your debtor may eventually need to sell some real property, at which time s/he will have to address your lien.

For those with less patience, there are a whole host of post judgment remedies available.

Citations to Discover Assets allow for an examination of your debtor, under oath, as to the financial wherewithal to pay the judgment. The Citation notice lists the financial documents the debtor needs to bring to court.  The judge swears in the debtor, and you are then free to examine the debtor on his or her ability to pay.  An examination of the financial records will often lead to the discovery of certain non-exempt assets that can be liquidated to satisfy the judgment.

In that regard, it’s important to note that certain assets have been deemed exempt from collection – the theory being that a debtor should be left with a certain minimum amount of assets necessary to survive.  Illinois’ list of exempt assets is not as generous as other states.  Common exempt assets include $15,000 of equity in the primary residence, up to $2,400 in a vehicle, a $4,000 “wildcard” exemption that can be applied to any property, $1,500 in “tools of trade,” and certain retirement and other benefits like social security.

Assume that you find non-exempt assets of your debtor available to satisfy your judgment. Non-wage garnishments provide a means to get at those assets.  For example, a Citation exam might lead to the discovery of a bank account with funds available.  The non-wage garnishment issues to the bank and, if the court approves, the bank will pay the funds to you.  Or if your examination reveals that a third party is holding property for the debtor, the same process applies.

If you discover non-exempt assets being held directly by the debtor, you can ask the court for a “turnover” order directing that the debtor deliver that property to you so that it can be liquidated (in a commercially reasonable manner) with the proceeds being applied to the judgment.  And, with the court’s approval, it’s possible to enlist the aid of the County Sheriff to enforce that order.

If your Citation exam shows that the debtor is employed, a wage garnishment affords another tool to recover on a judgment.  Wages can’t be garnished unless take home pay after taxes is more than $371.25 per week.  If that threshold is met, the amount of wages that can be garnished is limited to 15% of the weekly gross pay.  If other judgment creditors got there before you there may be nothing left to garnish until their judgment is satisfied.  And, certain benefits (like unemployment, social security, public aid and pensions if needed for support) cannot be garnished.

What about “professional debtors”? These debtors work the system and take advantage of every opportunity for delay and hindrance. Professional debtors often count on their creditors giving up. Don’t.  Use the tools available to you and be persistent and patient.

The last resort for many debtors is bankruptcy. A discussion of how to approach this situation is beyond the scope of this article. However, whatever you do, timely file a proof of claim with the Bankruptcy Court when advised to do so.

In these days of increasingly tight profit margins, often one or two customers who refuse to pay can send you from black to red. Preventive measures will go a long way toward improving your chances of successfully, and economically, recovering those amounts. And, if necessary, obtaining those judgments is not as tough as it would seem. Armed with such a judgment, and with the collection tools available to all creditors, your chances of eventually getting paid aren’t all that bad.