Can You Collect Your Money If You Win Your Small Claims Case?

• What Happens If You Win in Small Claims Court and They Don't Pay
• How to Collect Small Claims Court Judgments
• What Is a Judgment-Proof Debtor?
• How to Find a Judgment Debtor's Assets
• Collection Tools You Can Use Legally When You Have a Money Judgment
• Wage Garnishments in a Nutshell
• Personal Property and Other Collection Sources
• Problems You Might Encounter When Collecting a Judgment
• How to Prepare to Collect Before Filing a Small Claims Case
• Beware of Bankruptcy

Collecting from solvent individuals or businesses isn't usually a problem because most will routinely pay any judgments entered against them. If they don't, there are several legal ways you can force them to do so. However, if a debtor doesn't have the money to pay or won't pay voluntarily, collecting your judgment can be difficult and require you to spend more money without knowing if you'll be able to collect enough from the defendant to repay collection expenses.

What Is a Judgment-Proof Debtor?

A significant percentage of people who are not homeless or even "poor" are nevertheless "judgment-proof." In other words, the debtor has no assets you can collect, leaving you out of luck. Judgment-proof debtors are often unemployed and all their assets are protected from seizure.

For example, debtor protection laws prevent you from seizing certain types of property, including the food from the debtor's table, the clothing from the closet, the TV from the living room, or even, in most states, the car from the driveway. Also, you can't garnish a welfare, Social Security, unemployment, pension, or disability check. So if the person's income is from one of these sources, red flags should definitely be flying unless you can locate other nonexempt assets.

How to Find a Judgment Debtor's Assets

You'll want to do informal investigating online to see if you can locate the debtor's employment. It's good news if the defendant has a job because when someone fails to pay a judgment voluntarily, the easiest way to collect is to garnish the person's wages.

Consider hiring a private investigator to do a simple asset search to find other assets before filing your action. If the small claims case is already over, you can conduct an examination requiring the judgment debtor to tell you the types of assets the debtor owns and where they're located. The specific procedures should be on the court's website.

Collection Tools You Can Use Legally When You Have a Money Judgment

Personal Property and Other Collection Sources

Other collection sources include real estate, bank accounts, stocks and bonds, and motor vehicles. And if you've sued a business, you can often collect by ordering the sheriff or marshal to take the amount of the judgment right out of the debtor's cash register.

Problems You Might Encounter When Collecting a Judgment

Now let's look at some situations where you are likely to have a problem collecting:

• The defendant has no job or prospect of getting one.
• You can't identify any property to use as a collection source (for example, your opponent has no real estate, valuable car, or investments).
• If a business is involved, it's a fly-by-night outfit with no permanent address or obvious collection source, such as a cash register or owned fixtures or equipment. (Remember, many businesses lease equipment or take out a secured loan to purchase it, which means you're out of luck.)
• A contractor you want to sue is unlicensed and hard to track down.

How to Prepare to Collect Before Filing a Small Claims Case

To avoid problems before you file your small claims court case, make sure that at least one of the following is true:

• The person or business you wish to sue is solvent and likely to pay a court judgment voluntarily.
• The person is broke now but will likely be solvent in the future. Judgments in most states can be collected for five to twenty years (this period can usually be renewed) and earn interest until they are paid. In short, if you are willing to take a chance that a destitute college student will eventually get a job, win the lottery, inherit money, win a personal injury lawsuit, or otherwise become solvent sometime in the next few years, go ahead and sue. You'll have to sit on the judgment for a while, but eventually, it should be collectible.
• The defendant has a decent-paying job or is likely to get one in the not-too-distant future, as might be the case with a student. Most states allow a judgment to be collected for five to 20 years from the date it is entered, and you can apply to have this period extended.
• You can identify other assets–not protected by debtor exemption laws–that you can levy on, such as a bank account or real property (preferably other than the place where the person lives).
• If the defendant is a business that may not voluntarily pay its debts, you can identify a readily available cash source you can collect from–the best source is a cash register. Another good one is a valuable piece of equipment or machinery the judgment debtor owns, free and clear, for which you can get an order to have the property sold to pay off your judgment.
• Your lawsuit is based on a motor vehicle accident. In some states, a nonpaying defendant can have his or her license suspended for a period of time. Depending on how much the judgment is for and whether you were injured, a nonpaying defendant can have the license suspended for various lengths of time by the State Department of Motor Vehicles. Just the threat of a license suspension causes most judgment debtors to pay.

Beware of Bankruptcy

Unfortunately, it's common for litigants to file for bankruptcy shortly before or after you win your case. If a person or a business declares a straight bankruptcy under Chapter 7, your right to recover a small claims court judgment outside the bankruptcy is cut off.

There are, however, exceptions to this general rule, such as if your claim arose because you or your property were injured by the fraudulent or malicious behavior of the defendant. Your right to collect your judgment could survive the bankruptcy, but you might need to file and win an "adversary proceeding," a type of bankruptcy lawsuit.

Also, if you filed a lien against property before the bankruptcy filing, you might be able to recover the property if there is sufficient equity to pay liens filed before yours and satisfy your judgment. For more information, see How to File for Chapter 7 Bankruptcy, by Attorney Cara O'Neill (Nolo).