If you've recently received a money judgment, you likely want to know how to get paid after winning in small claims court. Hopefully, you're considering this question before filing a case because one of the most important questions to consider before suing anyone is, "If I win my small claims case, can I collect the judgment?" If you don't and later find the defendant has no assets, you could win the small claims battle but lose the collection war.
You might be surprised you don't automatically receive the money when you win a small claims judgment. Although many defendants will pay after a loss, you'll have to use additional legal procedures to collect if your defendant doesn't.
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.
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.
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.
Below are techniques you can use to satisfy your money judgment. The most cost-effective are wage garnishments, bank levies, and till taps. Seizing personal property or real estate is rare because the costs of seizing, storing, and selling property can be exorbitant. However, it's possible, but you'll likely want to hire a lawyer to assist with the process.
Under federal law and in most states, a creditor with a judgment can take 25% of a judgment debtor's net earnings, or the amount by which the debtor's net weekly earnings exceed 30 times the federal minimum wage, whichever is less. Net earnings are total earnings minus all mandatory deductions for such items as withheld income taxes and unemployment tax. The sheriff or marshal's office in your area usually can supply you with your state's rules.
Learn who can garnish wages. Also, if you're a defendant with a judgment against you, strategies to cope with wage garnishment are covered in Solve Your Money Troubles by Attorneys Amy Loftsgordon and Cara O'Neill (Nolo).
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.
Now let's look at some situations where you are likely to have a problem collecting:
To avoid problems before you file your small claims court case, make sure that at least one of the following is true:
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).