Before You Sue... Find Out if You Can Collect
By Teresa Ambord
When situations arise that seem out of control, you may feel you need to seek a resolution in court. But before you file a lawsuit, think about this: suppose you pay for an attorney, win your lawsuit, and are awarded damages. Will you be able to collect?
Attorneys refer to some people as "judgment proof." These are people who are either unable to pay, or they are so clever at hiding their assets that they appear unable to pay. Suing them may result in a win for you, but if you can't collect, you won't feel much like a winner.
Before you sue, do your homework.
- Does the person have a decent job, or the possibility of a good job in the foreseeable future? An example would be a college student who may be broke, but will soon graduate with stepped-up earning power. Be patient. A judgment can be collected for ten or more years, and can be renewed for another ten if necessary.
- Does the person own real property, other than his main home?
- Can you identify assets such as a bank account? Stocks or bonds?
If there are few visible assets, the satisfaction of winning may fall flat when you cannot collect a penny (not to mention that you've paid the cost of litigation). Debtor protection laws prevent you from taking such things as the loser's clothes and food and TV, and possibly his car. This varies by state, but generally, if the debtor has less than $2,000 equity in the car, you cannot force him to sell it. And if the car is used for business purposes, the allowed equity may be higher. Also, though you can garnish the wages of an employed person, the debtor who earns very low wages is off limits, as are payments from Social Security, a pension, disability, or welfare.
Assuming there are assets and you win a judgment but the debtor will not pay voluntarily, garnishment is the easiest way to collect. Provided they are not low income, you can get an order to have up to 25 percent of their wages withheld and sent to you. To start the wage garnishment process, type "wage garnishment forms," into a search engine, followed by your state name.
If you discover that the individual recently filed Chapter 7 bankruptcy, that's a good sign for you. He or she cannot file again for seven years, giving you time to collect. On the other hand if the debtor declares bankruptcy after the judgment and names you as a creditor, you will likely lose your ability to collect. There are some exceptions, however. If the debt was secured, you should be able to recover the property that was pledged against the loan. And, if the judgment was won because the individual committed malicious acts that injured you or your property, bankruptcy will not absolve him of the debt.
If the defendant is a business:
- If you are thinking of suing a business, has it been around for a few years, or is it fly-by-night?
- Is the headquarters of the business in your state?
- Do you know the exact location of the business, or only a post office box?
- Is there an indication that the business has daily cash inflow? (Such as a cash register and an apparent stream of customers.)
- Does the business own machinery or equipment?
- If the would-be defendant is a building or remodeling contractor, is he currently licensed?
You're much more likely to collect from a business that is well established and operating out of your home state. Generally, solvent businesses will pay judgments against them voluntarily. But if they don't and they seem to have a regular cash inflow, you can obtain an order to have the marshal or sheriff seize the cash right out of their cash register or bank account. Or you can force the sell of machinery or equipment to pay the judgment.
If you are suing a currently licensed building or remodeling contractor, some states allow you to seek help through the state licensing board. The contractor who fails to pay the judgment or post a bond may risk losing his license, and therefore his livelihood.
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