A court may decide in your favor, but it won't collect the judgment for you. So, before you sue, always ask yourself: Can I collect if I win? If you can't, think twice before filing a lawsuit.
Unfortunately, in a small but significant percentage of situations, people and businesses are broke (lawyers say "judgment proof"). Or, they're so good at hiding their assets that even if you sue and win, collecting your winnings is likely to prove impossible.
When an individual won't pay voluntarily, collecting your judgment can be difficult unless that person has:
When determining whether you'll be able to collect a judgment if you win, the first thing to investigate is whether the defendant has a job. If a person fails to pay a judgment voluntarily, the easiest way to collect in most states is to garnish up to 25% of his or her wages. (The wages of very low-income workers, however, are exempt from garnishment.)
You can't garnish a welfare, Social Security, unemployment, pension, or disability check. So if the person you want to sue gets all his or her income from one of those sources, you'll need to locate other non-exempt income or assets. Other common collection sources are real estate (except for equity in a personal residence, which may be protected by your state's homestead law), bank accounts, and stocks and bonds.
Collecting from solvent businesses isn't usually a problem, because most will routinely pay any judgments entered against them. But if a business doesn't voluntarily pay your judgment and it takes in money on a daily basis, chances are excellent that you can legally order the sheriff or marshal to grab this cash right out of the debtor's bank account or cash register (this is called a till tap).
It can be difficult to collect from fly-by-night businesses, however. If the business has no identifiable office or headquarters in your state or has already filed for bankruptcy, you may be out of luck when you try to collect.
Debtor protection laws keep you from seizing and selling many types of property, including the food from the debtor's table, the clothing from the closet, and the TV from the living room.
In many states it will even be impossible to seize and sell the debtor's car, because a debtor's motor vehicle is protected from being sold to satisfy a debt if the amount of equity in the vehicle is below a certain amount (often about $2,500, but sometimes much more, depending on the state). And if the debtor uses the vehicle for business purposes, it is often exempt from being grabbed and sold, no matter how much equity the debtor has.
If a person or a business declares bankruptcy under Chapter 7 of the federal Bankruptcy Code and lists you as a creditor, your right to recover a court judgment is cut off. Exceptions to this general rule are if your judgment was based on a secured loan and if you obtained a judgment because you or your property were injured by the willful and malicious behavior of the defendant. For more information, see Can You Collect Your Judgment?
In sum, here are some positive indicators that you probably will be able to collect a court judgment.
Personal income or assets. If an individual defendant has a decent job or you can identify other assets -- not protected by your state's debtor exemption laws -- that you can levy on, such as a bank account or real property (preferably other than equity in the debtor's home, which may be protected by homestead laws), you should be in a good position to collect.
Future income or assets. If you are suing a person who is broke now but is very likely to be solvent in the future (as might be the case with a student), it might be worth suing. Judgments can be collected for many years, almost indefinitely if you do the paperwork to keep renewing them, and they accrue interest as long as they are not paid.
Business income or assets. If a business is involved, you can identify a readily available cash source from which you can collect. As mentioned, one good source is a cash register. Another good one is a valuable piece of equipment or machinery owned by the judgment debtor that you can order sold to pay off your judgment.
Licensed professional. Your lawsuit is against a building or remodeling contractor who has a current license. In this situation, a number of states -- including California -- allow you to file the judgment with the state licensing board. Then if the contractor doesn't pay it off or post a bond, the contractor may lose his or her license.
In contrast, you're likely to have trouble collecting from a person (or business) with no income, assets, or fixed address, or who's about to file bankruptcy.
For more information about collecting a judgment, visit Nolo's Representing Yourself in Court center. For a detailed guide to the tips and strategies you need to sue someone successfully, get Everybody's Guide to Small Claims Court, by Ralph Warner (Nolo).