Collecting Your Small Claims Court Judgment: Common Problems

You filed a lawsuit and won a money judgment against the defendant (now called a judgment debtor). As a new judgment creditor, you're finding out that what you read online about small claims court is true: It's often much easier to get a judgment than to collect it.

While lots of judgment debtors pay up as required by law, others don't. We cover some of the most common problems judgment creditors encounter when trying to collect a small claims court judgment, such as:

• finding a judgment debtor who's ghosted you
• locating property you can get your hands on
• how to play the judgment collection "whack-a-mole" game, and
• pushing the judgment debtor into bankruptcy.

But before we get to those issues, let's pause to review the First Rule of Collections.

The First Rule of Collections

Here's the First Rule of Collections: If you don't end the process with more money in your pocket than what you started with, you're doing it wrong. Yes, it's glaringly obvious. But judgment creditors often get lost in a whirlwind of collection activity and emotions, determined to "teach that deadbeat debtor a lesson."

The only one who ends up learning a lesson is the judgment creditor. And the lesson they learn? Sometimes, judgment debt collection can be a high-cost, low-return exercise in frustration. A judgment debtor who always seems to be one step ahead of a collecting creditor is probably someone who's done this before, and who's had success beating creditors at the collection game.

If you're not sure whether you're throwing good money after bad, speak to an experienced collections lawyer. They can assess your situation and give you advice that's likely to save you lots of time and money.

When the Judgment Debtor Disappears

You'll find it hard to collect from a judgment debtor who ghosts you—disappears as soon as you get a judgment against them. The same is true if you took a default judgment against a no-show defendant. The internet has made the world a smaller place, but there still are plenty of ways to hide.

Start With Low-Cost Options

So, if you need to find the judgment debtor, what are your options? As a rule, it makes sense to start with the easiest, lowest-cost option first: An internet search. The more information you can provide (for example, names, aliases, addresses, employers), the greater the likelihood of some promising results. But be cautious about acting on leads—calling, texting, emails, or sending collection letters—unless you have confirmation you've found the right person.

Paying for People-Locator Services

If free searches don't strike paydirt, you'll have to decide about paying for people-locator services. You can find decent online providers that will compile the functional equivalent of a background report (names, aliases, current and former addresses, relatives, employment history, criminal history, and court judgments) for a modest charge, usually less than $100. Be wary of signing up for costly skip-trace services that want to charge hundreds and demand up-front payments.

If you're inclined to spend more money, contact reputable private investigators and skip-tracers in your area, ask about their services (specifically including their success rates), and find out what they charge.

Above all, keep in mind the First Rule of Collections, discussed above. Your small claims judgment is worth, at best, a few thousand dollars. It doesn't make sense to drop $3,000 on a skip-trace if you're trying to collect $5,000, especially since you'll have to spend more down the road on specific collection activities. Make a budget and stick to it.

Locating the Judgment Debtor's Property

Finding a missing judgment debtor is one thing. Locating the judgment debtor's property brings an entirely different set of problems. Here are some guidelines to keep in mind.

Beware the Judgment-Proof Debtor

A judgment-proof debtor has no insurance, no cash, no real estate, and no other assets you can seize. They're likely unemployed or underemployed, meaning there's little chance you can garnish wages or other income. If they do have property, much of it is likely to be shielded from collection by state exemption laws, or it has so little value that seizing the property will cost more than what it's worth.

A closely related problem is the fly-by-night business owner or unlicensed contractor who has no permanent address, no steady cash receipts (that you can find, anyway), and no unencumbered assets, inventory, or trade fixtures you can seize and sell. If you're able to find these judgment debtors, locating collectible property will be a tall order.

If you're dealing with a judgment-proof debtor, your options are limited. The best choice might simply be to wait. Keep your judgment alive and hope that at some point down the road, the judgment debtor acquires valuable, nonexempt property—maybe by gift or inheritance—or gets steady work so you can collect a portion of their earnings.

Online Asset Searches

With a bit of information, you can do some online sleuthing that might turn up property worth going after. Using the judgment debtor's name, check for real estate by searching the county tax assessor, county recorder, or county register of deeds records. Do a search in each county where the judgment debtor lives, works, or has a place of business. Check states and counties where the judgment debtor has relatives with whom they might jointly own property.

Find out about autos, boats, motor vehicles, and farm equipment the judgment debtor owns by searching the secretary of state's website. You can look for this information using the judgment debtor's name, an auto tag number, a vehicle identification number, or a state registration number.

The fact that you find assets online doesn't guarantee that you can seize them. State laws usually exempt at least part of the value of a homestead, a motor vehicle, tools of the trade, and equipment used to produce income. Special rules probably apply to jointly-owned property. Long story short: Don't take steps to seize or encumber the judgment debtor's property unless you're certain that:

• you've got the right person, and
• you can do so without running afoul of state exemption and other laws.

As with so many things in life, haste can make waste in judgment collections. Take action to seize or encumber property belonging to the wrong person, or property that's exempt or jointly owned, and state law might have some surprises in store for you (not the good kind). If you're unsure, a collections attorney can offer valuable guidance.

The Debtor's Examination

Every state allows some version of a debtor's examination, where the judgment debtor must answer questions, under oath, about their assets and other income. Laws vary from state to state, and your state might call it something else, like "supplementary proceedings" or "asset discovery proceedings."

The debtor's exam can be a powerful tool for gathering useful collection information. Depending on state law, a judgment debtor can be required to bring with them to the examination documents like pay stubs, tax returns, bank statements, and property titles. Some judgment debtors are so intimidated by the prospect of an exam that they'll pay—or make payment arrangements—to avoid it.

In every state, you'll need a final, enforceable judgment before conducting an examination. Some states impose additional requirements, such as proof that:

• some part of the judgment remains unpaid
• the judgment creditor has demanded payment, and
• the judgment creditor has tried to collect, but those efforts have failed.

To schedule an examination, the judgment creditor typically must:

• file a motion with the court and get a court order
• pay a motion fee (often less than $100 but can be much more), and
• serve the judgment debtor with a copy of the motion and the court's order.

Now for the bad news: A debtor's exam won't come cheap. In addition to the motion fee, you'll pay for a process server and a court reporter (to record and transcribe the exam, because it's under oath and on the record). If you hire legal counsel to help with the motion and order, that'll be another out-of-pocket expense. Don't be surprised if the total cost approaches or exceeds $500.

Private Investigators and Asset Locators

Contact reputable private investigation and asset location services to find out about the services they offer, their success rates, and how much they charge. If they offer flat-fee services, be sure you know exactly what your fee includes, and what kinds of "extras" might pop up later. When you're paying by the hour, the meter is always running and you can quickly run up a big tab.

Here too, it's crucial to have a budget—and to stick to it.

Playing the Judgment Collection "Whack-a-Mole" Game

Some judgment debtors are determined to evade collection efforts. They hide assets inside corporations or limited liability companies, or put property in trust. They hire companies or law firms that specialize in helping to shield assets and income from collections. They skirt the edges of collection law, always managing to do just enough to avoid sanctions or penalties.

Say you've got good information about the judgment debtor's checking, savings, and brokerage accounts. You follow the necessary legal steps, getting writs of execution or garnishment and arranging for the county sheriff to serve them. The sheriff shows up, only to learn that the accounts were all closed within a few days before, maybe even hours. You're back to square one.

This might be called the judgment collection "whack-a-mole" game. Every time you're on the verge of collecting, the judgment debtor manages to beat you to it. Can you win this game? Maybe.

Get a Court Order

Some states anticipate this kind of behavior and provide legal tools judgment creditors can use. Post-judgment collection laws often let courts effectively freeze a judgment debtor's assets with an injunction or a turnover order.

But getting this relief isn't as simple as showing up in court with a list of the judgment debtor's property. State laws vary widely. Here, for example, is information about turnover orders under Texas law. If you decide to go this route, get help from a collections attorney.

Hire a Collection Company

Like most people, you probably can't afford to spend dozens or hundreds of hours searching for judgment debtors, locating assets, and slogging through burdensome collection procedures. If you prefer to simply hand the work off to someone who knows what they're doing, you can find reputable providers—collection agencies and creditors' law firms—that will do the heavy lifting for you.

Of course, these services come at a cost. Even if you can afford to pay by the hour, that likely won't make sense because of the relatively small amount at stake. Fortunately, you might have other options.

Look for a collector who will charge a percentage of whatever they recover on your behalf (called a "contingency fee"). Because of the relatively small amounts involved in small claims judgments, you can expect to pay a contingency fee of between 40% and 50%. The percentage might be lower for newer judgments and higher for those that have grown stale.

Does it make sense to give up such a sizeable part of your judgment? Quite possibly so, once you factor in your out of pocket expenses and the value of your time. Because they do it for a living, odds are that collectors can work more quickly and efficiently than you would, meaning you might get your money faster. Do the cost-benefit analysis yourself, and decide which approach best suits your situation.

Avoid Pushing the Judgment Debtor Into Bankruptcy

Many judgment debtors, finding themselves backed into a financial corner, choose to file for bankruptcy. If the judgment debtor declares bankruptcy under Chapter 7, your right to collect a small claims court judgment outside the bankruptcy is, as a rule, cut off.

But there are exceptions to this rule. When your small claims case arose because you or your property were injured by the judgment debtor's fraudulent or malicious behavior, you might be allowed to file an "adversary proceeding," a type of bankruptcy court lawsuit. The catch? Another lawsuit will cost you, and spending that kind of money probably doesn't make sense.

Ideally, you want to avoid aggressive collection efforts that might push the judgment debtor into bankruptcy court. One approach is simply to file judgment liens against their property. A judgment lien secures your right to collect by attaching the judgment to specific items of property—usually real estate.

In most states, once you've filed a judgment lien, you aren't required to do much more. Just sit back and wait for the judgment debtor to sell or refinance the property. At that point, you can collect what you're owed. (Learn more about judgment liens in your state.)

Get Help With Your Collection Problems

Trying to collect a judgment debt can quickly spiral out of control into a seemingly never-ending mess. State (and federal) collection and exemption laws often work as a trap for the unwary. Before you know it, you're upside down in your judgment, meaning you've spent more trying to collect than what the judgment is worth.

The best way to avoid this minefield is by speaking with an experienced collections lawyer. This is someone who knows the law (and the First Rule of Collections), understands the legal traps and how to avoid them, and can quickly assess your circumstances and help you formulate the best collection plan. Even if you choose to do most of the legwork on your own, it makes sense to have someone on your side guiding you through the steps.