Debt Recovery

You’re not alone. 69% of all small business owners are kept up at night with worries about cash flow. One of the leading concerns when it comes to cash flow is accounts receivable (money owed to business owners from customers, borrowers, etc.). If your business has a steadily growing receivables account – the average US small business’ receivables are over $53,000 – it can be difficult to focus on much else, especially when you require that money in order to continue managing your business.

You may feel locked between wanting not to be harsh on your owing customer while still wish desperately that they’d pay. Here are some debt collection tips for small businesses that we believe are the most effective in improving cash flow:

1. Remain Open-Minded and Understanding When Communicating With Debtors.

   The first important thing you should do when dealing with your owing account holders is to always remain calm and together regardless of how worked up they may get over the situation. These people are still customers, which means relationships should remain important. If your customers get angry they can go home, however, as a direct reflection of your business, any negative situation can be detrimental to the image of your business. You’re also more likely to communicate effectively without taking offensive and defensive sides.

2. Take a Gradual Approach.

   If the debt is rather fresh, start communication with only a simple follow-up email and a benefit of the doubt that your customers are only a little behind and will make a payment soon. If a couple weeks have passed by without payment or response, you can give a more assertive nudge by making a phone call and/or sending a stationary letter in the mail. Ensure not to allow too much time to pass between communication attempts, as customers may believe that their debt has been “forgotten” and if you’ve forgotten then they might decide to forget as well.

3. Understand Your Rights and The Rights of Your Customers.

   One of the first things you should do after deciding to exchange business on account is to educate yourself on your rights as debtees as well as your customers’ rights as the debtors when the time comes to take the extra action in persuading customers to finally pay their overdue bills. The state of Maryland governs these rights under state and federal law. The last thing you want to do is cross a line that results in having government fines charged to your business, making cash flow even more scarce. Your accountant will know more about the receivable process and can help guide you on fees, contracts, and the types of accounts you should act on quicker than others.

4. Don’t Wait Too Long To Reach Out For Help.  The Statute of Limitations in Maryland that defines how long you have to take legal action on collections is 3 years. That’s three years from the last activity on the account. It’s possible for your business to miss out on the right to take a debtor to court if time runs out before you, a collections agency, or your lawyer are able to get in front of a judge.

   Although we believe that most people truly want to pay back their debts and are simply in a hard place, there are those who fall under the umbrella of never intending on making any effort to communicate or make payments. In situations such as these, a collection agency is more prepared to deal with hostile or MIA debtors and are more likely to make headway on payments.

5. Prevent The Chance of Delinquent Accounts by Running Credit Checks.

   Your small business may be struggling to improve your cash flow due to overdue accounts now, but you can plan for a more predictable future by doing credit checks, especially over a certain amount. For $30 you can purchase a D&B report that will show you any other open or delinquent accounts as well as any liens or judgments against the individual. If you’re able to establish that the customer is likely to pay their debts or not, it can save you quite a bit of time and resources down the road.

6. Do Not Hesitate to Hire a Professional Debt Collection Agency.
   
   There are several myths about collection agencies. Hiring a collection agency is possibly the best thing you can do to get back the lost money and stop spending too much time of your own employees who are neither trained for debt collection nor have any idea of laws pertaining to debt recovery.  Need a Collection Agency? Contact us

Accounts receivable and outstanding debt may not play a huge factor in your daily business routine, however, you shouldn’t take a relaxed attitude when it comes to actively ensure your bills and invoices are sent promptly and are paid immediately.

To learn more about what you can be doing to lower your accounts receivable and boost your bottom line, reach out to us.

References:
https://www.forbes.com/sites/allbusiness/2019/04/21/cash-flow-challenges-facing-small-business-owners/
http://www.law-margulies.com
https://www.dnb.com/ca-en/

While customers may dread receiving calls for payments, businesses are equally wary of hiring a debt collection agency for variety of reasons, biggest being loss of reputation and clients. Collection Agencies focus on maintaining positive relationships between businesses and consumers.

The first section of the articles focuses on the myths that debtors have and the later half talks about the myths that creditors/businesses have about Collection Agencies.

Common misconceptions that Debtors have

If you have outstanding debts, you either already have experience dealing with debt collection agencies, or you will at some point. Debt collection can be a complex process. It combines law with aspects of finance, accounting and tackling with various debtor excuses to avoid payments. There is also be some degree of pressure involved since the debt collector’s job is to pursue many options to satisfy amounts owed.

We’ve identified and busted several myths about debt collection agencies.

Myth #1

Burying your head in the sand will make debts go away

This first myth is one of the biggest misconceptions in debt collection. Creditors and debt collectors do not simply move on to the next account if debtors ignore phone calls and letters. Ignoring debt is not a solution to a debt problem. In fact, a debtor may miss excellent opportunities to settle debt by refusing to face their unpaid bills. Once an account is with a debt collector, the music has just begun and they will continue to pursue recovering debt in one way or the other, in a legally complaint manner. If you cannot effort to pay in full in one go, negotiate for a payment plan.

Myth #2

People can become “judgment proof”

This myth is also common, but it is not the top misconception because there are some circumstances when it can be true that a person can become insolvent. Insolvency simply means that a person’s debts outweigh their assets. However, unless an individual legally declares bankruptcy and obtains a discharge of debt in bankruptcy, a debt collector may be able to wait until the individual begins accumulating assets again, and then collect. Some people believe that if they have no money in the bank, do not own property, and live paycheck to paycheck, then they are “judgment proof.” This is not the case, and a collector may find ways to collect on a debt.

Myth #3

Debt collectors are shady and use underhanded tactics

Collecting debts is a professional service governed by laws and regulations. While there are examples of debt collectors violating consumer protection laws, these incidents are often isolated incidents and not the norm. Debtors should know their rights and be on the alert for violations of debt collection laws, but should not use these protections as a reason to avoid working with a collector to resolve a debt. Debt collectors are required to work within various laws, most prominent being the FDCPA.

Myth #4

Debt collectors are bullies

Similar to the fear that debt collectors are shady is the misconception that they are bullies that only have the goal of forcing a debtor to pay. Professional debt collectors are results-oriented and want to resolve a file, not ruin someone’s life or make a sport out of someone else’s misery. Most debt collectors work with you to resolve the debt in an amicable manner, rather than unnecessarily harass or threaten you.

Myth #5

Small debts don’t matter

Some debtors believe that their debts are too small. Maybe they owe a medical practice $100 for an unpaid copay and think it unlikely that the medical practice will seek to recover the bill. Businesses that often have small individual accounts receivable amounts do not always write those debts off of their books. The trend for many companies is to leverage technology and automation to pursue these amounts. The bottom line — debtors can never tell if a creditor is going to write off debt or not. Collection is entirely up to the creditor, and there is no minimum amount for commencing the collection process.

Myth #6:

Paying a debt collector doesn’t impact credit score

Many debtors believe that once their accounts have gone into collection, their credit is shot and there simply is no hope. This misconception often fuels ignoring collector calls and deciding to not pay even small amounts that the debtor can afford. However, collection status does not stop credit reporting in every case, and credit standing can continue to degrade. Working with the collector to make payment arrangements can be the start of repairing one’s credit.

Myth #7

Debt collectors are relentless; all they want is money

This myth also causes debtors to avoid communicating with debt collectors. The truth is, while in many cases the desired goal of a debt collector is to get payment from a debtor, often they just want to resolve the case. Sometimes that means entering into a repayment plan or other programs to satisfy debt. The goals of debtors and collectors can, and frequently do, align.

Myth #8

Debtors should avoid debt collectors and should pay the creditor directly

In many cases, once a debt has been placed with a debt collector, the original creditor no longer has an interest in the account. Banks, medical practices, and other businesses that can have accounts receivables sometimes sell or otherwise transfer their collection accounts to other companies. For this reason, debtors should deal directly with the debt collector. Large institutions, such as a commercial bank, might not immediately know that the debt has been transferred, so payment can end up in limbo.

Myth #9

Debt collectors will come to my home or at my workplace

99.99% of the time a debt collector never visits the home or workplace of the debtor. Only in the rarest of rarest conditions where a legal judgement has been passed to seize some of the debtor’s assets, something like this may happen.

Myth #10

Partial Payment will stop those collection calls

No, the calls resume the soon after the some of the promised installments are not made. It is debtor’s responsibility to pay the debt in full, unless a lower amount is agreed upon explicitly to settle the matter.

Common misconceptions that Creditors / Businesses have

Myth #1

Debt collection is too costly for my business

Most debt collection agencies operate on a contingency fee basis, meaning they only get paid when they collect. Some have different business models that may call for a flat fee for their service. Professional debt collection firms strive to provide measurable value to their customers and work to collect money so that the creditor lowers account receivables. Collecting some debts may not be financially feasible, but professional debt collection services are usually reasonably priced.

Myth #2

Businesses are better off taking a tax write-off than collecting

Charging off a debt may be a good option for a creditor for accounting purposes, but it doesn’t return cash to the creditor’s business. Collecting can create cash flow where none existed before.

Myth #3

Collection Agencies will make me lose clients

Collection Agencies follow a very diplomatic approach, they know that debtors are not too happy once they get to know that their account has been forwarded to a collection agency. Seasoned debt collectors work with your debtors/clients in a very amicable yet firm manner. Their diplomatic approach ensures that clearing your debt becomes their number one priority. A debt collector has many strategies to help you close the account in an amicable fashion. They are trained well to ensure that your brand image is not tarnished.

Myth #4

Collection Agencies are cumbersome to work with

It is exactly opposite, Collection Agencies are designed to take away your accounts receivable headaches. Most good collection agencies have a website, using which the accounts can be submitted. They can deposit money in your bank account or send a check once a payment is collected. Collection agencies work as an extension to your accounting department and an experienced representative who will answer all your queries.

The most basic premise of business is that a business needs to get paid for the products or services they provide. Most of the time, this is not a problem and customers pay either before the transaction is finished or shortly after. However, there are occasions when bills are not paid on time or at all. In these cases, businesses have two options. They can pursue the debt themselves, which takes time and more many they may not have or want to spend, or they can turn the debt over to a debt collection agency. In this case, one of the most important things for a business to consider is that they are selecting an ethical debt collecting agency. If not, it can lead to the debt not being collected or worse, legal issues for the company. Here are the reasons why it is so important to select an ethical debt collection agency.

Why Ethical Debt Collection is Important

The biggest reason that selecting an ethical debt collection agency is so important is that, like any other vendor you work with in business, they are a reflection of you and your company. A rude debt collector may not only ruin your own company’s reputation, but after a rude conversation most debtors would become adamant and angry and would not even pay even if they had means to clear the bill. Highest performing debt collectors get results by working amicably with debtors, not against them. Harassing a debtor is against the Federal laws anyway (FDCPA Laws).

Online reputation. In 2020, the internet makes business incredibly transparent and connected. If someone is the victim of unethical debt collection practices, there is a good chance they will put that online (Google or Yelp reviews). This can severely damage the reputation of your business and become one of the first things people see when they Google your company. Remember, the debt collector is collecting a debt incurred with your company. This means that if people get upset about the practice and decide to write about it online, they will most likely mention your company instead of putting the blame squarely on the debt collector.

Ruining relationships. The other thing to consider is the long-term health of your business. Just because a customer falls into debt and must be turned over to a debt collector does not mean that they will never be able to be a client of yours again. Chances are, you have spent time and money developing a relationship with that client already. If you turn them over to an unethical debt collector, all that investment will go out the window. If/when the customer gets over whatever issue is preventing payment, they may become a valuable customer again. Even when pursuing a debt, it is never a good idea to burn bridges in business.

Business ethics. While every business has a different tolerance for moral and ethical issues, no business wants to be seen as being completely unethical. This will not only hurt your reputation with consumers but can also affect your company in other areas. Vendors may be less likely to want to work with companies that are believed to be unethical. A company with this reputation may also have a hard time keeping or attracting new employees.

Federal Debt Collection Regulations

All debt collectors are subject to the Consumer Credit Protection Act and the Fair Debt Collection Practices Act. The former was established by the federal government in 1968 and the latter was created in 1977 as an amendment to the Consumer Credit Protection Act and has been amended multiple times since. The Fair Debt Collection Practices Act ( or FDCPA) speaks specifically to what debt collectors must do and may not do while pursuing a debt.

The law states that the following when trying to collect a debt with a consumer:

• Identify themselves and notify the consumer
• Give the name and address of the original creditor
• Notify the consumer of their right to dispute the debt
• Provide verification of the debt
• File a lawsuit in a proper venue

In addition to having to follow these regulations, the Act also lays out multiple practices that are not acceptable or specific regulations that must be followed. These include:

• Only making contact during specified hours
• Must cease communication upon request
• Cannot engage in excessive or abusive conversations or telephone calls
• Cannot call consumers at work
• Cannot contact a consumer if you know they have retained an attorney
• Cannot communicate with the consumer after the request for validation has been made
• Cannot misrepresent yourself or deceive the consumer
• Cannot publish the consumer’s name or address
• Cannot seek unjustified amounts
• Cannot threaten arrest or legal action
• Cannot use abusive or profane language
• Cannot reveal or discuss the debt with a third party
• Cannot contact using embarrassing media
• Cannot report false information on a credit report

How to Choose an Ethical Debt Collection Agency

There are over 5,000 debt collecting companies in the United States alone. With any industry this large, there are bound to be some great companies, some very bad ones and many that are somewhere in between. So, how do you find an ethical debt collection company among the thousands available?

Read the reviews. Just like people will look online for information about your company’s reputation and service before doing business with you, you should do the same when looking for a debt collection company. Sites like Trustpilot or ConsumerAffairs compile reviews from around the internet and put them in one place to make it easy to gather information.

Look for accreditation. There are also organizations that vet companies’ ethics, standards, and practices as well. The Better Business Bureau (BBB) gives companies ratings that range from A+ to F based on things like the number of complaints filed, transparency, time in business, and more. They even give their seal of approval to the best companies in each industry.

Ask questions. Once you have a basic understanding of the federal and state requirements for debt collection in your area, it is fair to ask questions of the company you are thinking of working with. Ask about their philosophy, how they go about their business, and how they handle disputes. Remember, they will be an extension of your company so you want to vet them thoroughly.

Conclusion 

Collecting debt from customers is never a pleasant process but it is a necessity in business. If done ethically, it does not have to be a terrible experience though for you or the customer who is in debt. When you select an ethical debt collection company, you will protect your business’ reputation, recover the debts that are owed, and maybe even be able to hold on to customers even after the process is complete.

Need a Good Collection Agency: Contact us

 

Families across the country struggle with paying for their children’s lunches, and so do schools. The Healthy Hunger-Free-Kids Act of 2010 took a look at school meal debt and required districts to come up with a plan for unpaid meal fees, but there aren’t any standards at the federal level for what states or districts have to put in their policies, and there aren’t any basic protections for children or families.

Schools have resorted to identifying students who can’t pay for their meals at school with wristbands or hand stamps, or publishing lists of students who haven’t paid to get the unpaid fees. One district in Rhode Island stopped offering cheese sandwiches just to kids with lunch debt and began to offer sunflower seed butter and jelly sandwiches as those were available to all students as a way to tone down the lunch shaming. Some older students weren’t able to go on field trips or take part in dances or other activities if they owed money. One district in Pennsylvania sent letters to parents of 1,000 students that said the parents could have to go to delinquency court and that their children could be placed in foster care. Despite lunch shaming efforts schools are still wallowing in debt because students can’t or don’t pay for their lunches. Lunch shaming is viewed unethical by most parents and is not the best way to recover money.

What is the Problem for Schools?

The reasons parents don’t pay for their children’s lunches vary significantly from not being able to, to not qualifying for the free and reduced lunch program but still struggling to feed their children, or perhaps just forgetting to pay. Still, these reasons stack up financially for schools, and they end up with a significant amount of debt.

Schools are required by the federal government to find a way to get unpaid balances paid, but it doesn’t specify how. This caused more lunch shaming issues to pop up when the requirement was made before the 2017-2018 school year. Schools are under a lot of pressure to handle their school meal programs themselves, and over 75 percent of the schools in the National School Lunch Program had some kind of meal debt during the 2016-2017 school year.

Schools don’t always take advantage of the federal free and reduced lunch program. Each school has a different reimbursement rate depending on its poverty level. If a school has lower reimbursement rates, it may offer free meals to students at two times above the federal poverty level, which is an annual income of $50,000 for a family of four.

A superintendent of schools in Oregon, Tim Sweeney, oversees schools in the state’s poor South Coast, and his district is in the red because it feeds all of the district’s students. For his district, it costs about $25,000 a year to do this, money which he said could be spent on textbooks. Schools in Warwick, Rhode Island had a debt of $77,000, and $12,000 of that was owed by families who qualified for free lunches, but their charges happened before their applications were approved.

One problem that has arisen is that the United States Department of Agriculture has suggested a new rule that can change how states determine who qualifies for the Supplemental Nutrition Assistance Program (SNAP) program, which helps low-income people with money every month for food purchases. Children make up 44 percent of SNAP beneficiaries. This rule change could affect students who are automatically eligible for the free and reduced lunch program if they are in a SNAP household. Should enough students at a certain school not qualify for SNAP, the school would no longer be able to participate in the free and reduced lunch program, which could further increase their meal debt.

What Can Be Done?

Community Eligibility Provision

The federal Community Eligibility Provision empowers schools in high-poverty areas to give meals to students at no charge, and this gets rid of school meal debt and ends shaming of students. This program also cuts down on the paperwork families and schools have to deal with for school meal applications. In the 2018 to 2019 school year, about 28,500 schools took part in the program, but many eligible schools have not opted. Between the 2017-2018 and 2018-2019 school years, participation in the program increased by 14 percent. The number of children participating is around 13.6 million across the nation, but expanding participation in this program can cut down on school meal debt.

Tax Increases

Chicago, Dallas, and New York City are large cities that offer free breakfast and lunch to all students, and Oregon is one state expanding its free and reduced lunch program to all students throughout the entire state. The state is doing this with a school tax package, and it includes a $1 billion annual investment to up student performance and will be accomplished with a half percent business tax increase. The program will help make sure that over 60 percent of the 580,000 public school students in the state are included. In this program, children from families that have annual incomes of up to three times the federal poverty level, which is $75,000 for a family of four, would be able to eat for free at school.

Debt Collection

Cranston, Maine is another place with a lot of lunch debt in the school systems. That district had a debt of about $90,000 and began working with a debt collector to get the money paid. Families’ credit scores aren’t affected, but it helps to put the pressure on families to pay. Some collection agencies can send 3 collection letters for $6, which we believe is a steal and an amicable way to recover debt.

Cost effective recovery of unpaid student lunches: We understand that schools are tight on budget. If you need a super low cost debt collection agency with extensive experience in recovering school debt then Contact us. Send 3 diplomatic Collection Letters for $6 only !

Campaign Hard to Get Families Approved for Free and Reduced Lunch Early in the School Year

Many families that could qualify for the free and reduced lunch program are not signing up. Schools can ratchet up their efforts to get families that qualify enrolled. As previously mentioned, $12,000 of a $77,000 school lunch debt in Warwick, Rhode Island was attributable to students whose lunch charges occurred as their applications for free and reduced lunch were being processed.

Make Meal Applications Accessible

Eligibility misunderstandings, language barriers, and not wanting to share data may make households not want to fill out and turn in applications for free or reduced meals. All districts should make the application available in all languages represented in the district, and using web-based applications can also be an option to increase convenience for some families. Families should also be reminded to fill out applications any time during the year.

Increase Direct Certification

Students in SNAP, TANF, FDPRI, and Medicaid (in some states) can automatically qualify without the need for an application. Students who are homeless, migrant, in foster care and Head Start also qualify without an application. Enrolling all children in the household of one qualifying student can also cut down on debt.

Help Families Apply for SNAP

Parents with more information about SNAP may be more likely to participate in the program. Providing information to parents about SNAP benefits and helping them to apply can bring more families into the SNAP program, thus making them eligible for free and reduced lunches.

Increase Communication

When a student’s debt begins to accrue, schools can better keep families posted about meal account balances with texts and emails. This can be done even when balances are low. When debts begin to accrue, it may mean there has been a change in household finances, and it is a good time to reach out to families to help them see if they are eligible for the free and reduced lunch program.

Get Rid of the Ability to Buy Competitive Foods.

According to the Food Research and Action Center:

Competitive foods, such as snacks and sodas, compete with the school breakfast and lunch programs and can draw money out of students’ school meal accounts. Many school districts will provide the reimbursable school meal to students when they have accrued school meal debt, but limit purchasing competitive foods. School districts can arrange the environment of the cafeteria so that competitive foods are only accessible once a student has gone through the lunch line.

 

Use the Application Submission Date

Certify students for free and reduced lunches as of the date that their application was turned in, not the date the application is approved.

Carry Over

The Food Research and Action Center recommends:

At the start of a new school year, school districts can carry over a students’ eligibility for free or reduced-price school meals for up to 30 operating days or until a new eligibility determination is made, whichever comes first. School districts are required to do this for students who attended the district the previous year. USDA encourages school districts to carry over eligibility for 30 days or until a new determination is made (whichever comes first) for new students who were certified for free or reduce-price school meals by the previous district.

Charitable Contributions

Among the lunch shaming news stories are stories of individuals making sacrifices to help pay down lunch debts at their local schools. Schools can also take the lead and do fundraisers as they do for field trips, new sports equipment, and other items they needs to pay down their debt. This could be done in a number of ways, resulting in creative ways to get the schools’ lunch debt under control.

States Can Take More Action

New Mexico eliminated lunch shaming and made schools enroll eligible students into the federal meal program if their parents haven’t with a new law in 2017.

Schools across the country are drowning in meal debt, and taking action at both the local and state levels could significantly reduce the debt the schools incur and put an end to lunch shaming.

For more ways to reduce school lunch debt, read “Best Practices for Preventing or Reducing School Meal Debt” from the Food Research and Action Center.

References:

https://www.nbcnews.com/think/opinion/school-lunch-debt-lunch-shaming-problem-needs-national-solution-ncna1066461

https://www.frac.org/community-eligibility

https://www.statesmanjournal.com/story/news/education/2019/05/16/oregon-oks-largest-expansion-federal-free-lunch-program/3695534002/

https://apnews.com/21d02ce0aff444508ca427508ac1580b

https://www.cnn.com/2019/07/20/us/pennsylvania-school-lunch-debt-trnd/index.html

http://neatoday.org/2019/10/17/states-take-on-lunch-shaming/

https://www.cnn.com/2019/05/12/politics/school-lunch-shaming-children-debt/index.html

https://frac.org/research/resource-library/best-practices-preventing-reducing-school-meal-debt

Yes, a debt collector can sue a borrower/debtor in court on behalf of a creditor to recover money that has not been paid. A debt collector cannot outright threaten the borrower of a legal action during the recovery process, however he can amicably explain the steps he may take if the debt is not paid off, especially if the borrower asks what steps will be taken next if amount is not paid off.

There are several factors which play a huge role whether or not the debt collector can go ahead to the court or not.

1)   Does the collector have sufficient documentation to prove that you indeed owe the debt and how much. Do not ignore a court notice, because if you do not go to the court the judge may pass a default judgement against you. It is the borrower’s/debtor’s right to ask the debt collector for the backup documentation.

2)  Depending in which state the debtor resides, there are laws that prevent a debt collector from suing a debtor after certain number of years. These are called the Statute of Limitations or in other words, how old is the debt? For example in California, if a debt is more than 4 years old a debt collector cannot sue the debtor in the court.

Also, there are different time limits if there was a oral contract or a written contract or promissory note or an open ended debt like the credit card debt.

A debt collector can continue to attempt recovering money but he cannot do much  beyond that once the Statute of Limitations ceiling hits. Therefore most debt collectors will not even attempt to recover money if a debt has crossed the Statute of Limitations.

There are may factors which can reset the age of an account, for example if you agree to make a small payment against the debt or sign a new contract to make the payment, then the Statute of Limitation resets. If your debt is very old, you can always ask the debt collector to check and explain you if the Statute of Limitation has been reached or not.

3)  A debt collector will typically not sue until a debt has been over 180 days past due for medical bills and 120 days for non-medical debt. Patients get a 180-day grace period to resolve their medical debt before it shows up on their credit reports.

4)  A debt collector may attempt to add his court/lawyer fees and interest on top of the original debt owed, however it is up to the judge to approve it or not.

If you indeed get sued then do appear in the court and if you think if any of your legal right (like the FDCPA laws) is violated then fight against it.

 

Someone owed you money. You spent days, weeks, and months trying to get the debtor to pay you, but for one reason or another, all of your efforts failed to prompt payment in full. So — probably with a great deal of reluctance — you took the big step of involving the court system. Suing a debtor introduces some delay and cost to the debt collection process, but it can be an inevitable step if all other attempts to collect fall flat. If you have amounts owed to you, it may be necessary to take this step, but it is crucially important to know how to collect on any small claims judgment you may win.

A judgment is not the same thing as payment

The first step to collecting on a court judgment is to understand what a court judgment is — its purpose. For this article, we are going to focus on small claims judgments, as these can often be obtained without the involvement of an attorney (although should you have any specific legal questions about your case, you should consult with an attorney.) In many cases, a small business may obtain a judgment but not be sure of the next steps. Understanding how a judgment fits into your collection plans will help you take the next steps to eventual payment of the debt.

So, what is a judgment? A money judgment is a court order that directs the payment of an amount and provides judgment creditor rights to the winning party. It is a legal document and is generally governed by the laws of the state in which the judgment is obtained. For example, if you win a money judgment in New York City small claims court, the enforcement of the judgment (which is a legal term for the activities and process of getting paid) will have to abide by New York State rules. This is just in most cases, as collection of the amount due may also have to consider where the debtor lives and how to enforce the judgment in their city or state, if it is not the same as where you obtained the judgment.

A judgment is not the same as a check or other commercial paper. It simply provides a creditor with a basis to pursue collection activities with the power of the court. Some first-time judgment creditors get upset when they realize that a judgment is often little more than just a piece of paper. It provides rights that are greater than if you were just collecting on an unpaid bill as it can compel the debtor and others to help you collect.

A judgment can force a debtor to communicate

A judgment does not directly compel a debtor to pay, but when used as a tool, it can provide information that will help a creditor ultimately collect. A judgment directs the debtor to pay, but if they decide to ignore it, there is no specific penalty, such as contempt of court. However, a judgment gives a creditor the power to require the debtor to answer questions, both in writing and by calling them to appear at a court conference to give answers under oath. It is common practice to send an “information subpoena” — a formal list of questions in writing — after winning a judgment. This subpoena can ask the debtor almost anything related to their financial situation and the debt. The creditor creates a list of questions, such as:

• Where do you bank?
• What is your checking account number?
• Are you employed?
• How much cash do you have?
• Do you own property, such as real estate, automobiles, or jewelry?

If the debtor ignores the questions, then the creditor can require them to appear before the court to answer the questions, and it may then lead to sanctions such as contempt of court, but this is rare.

A judgment can require others to provide information on a debtor

Creditors can also ask financial institutions and other people to answer questions about a debtor, also through an information subpoena. A common collection strategy is to send blanket information subpoenas to banks and other financial institutions in the area where the debtor lives. A creditor may already have some information on the debtor’s bank, such as from a check used for previous payment, or from a loan application. A judgment empowers a creditor to reach out to those who may have information that would help in collections.

Judgments authorize attachments to debtor property

Besides empowering creditors to collect information, a judgment also arms a creditor with the ability to collect through garnishment and other techniques. In most cases, these activities are performed by local law enforcement, such as the sheriff of the county where the debtor resides or where the debtor maintains assets such as checking accounts or property. This is where the information gained through the use of subpoena power has the most value. If you learn that a debtor has sufficient money in the bank to satisfy your judgment, you can direct the sheriff to issue a property execution against the bank account.

Similarly, if you learn that a debtor has a job, you can direct the sheriff to issue an income execution that garnishes their wages. If a debtor owns property such as a vehicle that is free and clear of any other liens such as a car loan title lien, then a creditor may also be able to force the sale of that asset. In all of these cases, the sheriff becomes the primary collector of the amounts due. They keep a portion as their fee — and amount that varies based on state law — and remit the remaining funds to the creditor.

The process of collecting on a small claims judgment can be complicated and a bit overwhelming. Success requires a high level of attention to detail, and a well-managed plan of attach that leverages all available tools to identify sources of funds and compel payment. It may well be that the judgment is uncollectable. If a debtor has no bank account or assets that are attachable, then a creditor may spend years trying to collect a small amount. While most jurisdictions allow for interest to accrue on a judgment, the difficulty of collection may encourage post-judgment settlement, such as a payment plan agreement or stipulation to accept less than the amount owed.

A professional debt collector is an invaluable resource for navigating post-judgment collections. They can assist with enforcement activities, coordinate collection, and provide advice as to the collectability of the judgment. For more information on how a professional debt collector can help you, contact us.