Don't Sue Unless You Can Collect the Judgment
Before you sue, make sure your opponent is solvent so you can collect what you’re owed.
A court may decide in your favor, but it won't collect the judgment for you. So, before you sue, always ask yourself: Can I collect if I win? If you can't, think twice before filing a lawsuit.
Unfortunately, in a small but significant percentage of situations, people and businesses are broke (lawyers say "judgment proof"). Or, they're so good at hiding their assets that even if you sue and win, collecting your winnings is likely to prove impossible.
Ways to Collect Judgments
When an individual won't pay voluntarily, collecting your judgment can be difficult unless that person has:
When determining whether you'll be able to collect a judgment if you win, the first thing to investigate is whether the defendant has a job. If a person fails to pay a judgment voluntarily, the easiest way to collect in most states is to garnish up to 25% of his or her wages. (The wages of very low-income workers, however, are exempt from garnishment.)
You can't garnish a welfare, Social Security, unemployment, pension, or disability check. So if the person you want to sue gets all his or her income from one of those sources, you'll need to locate other non-exempt income or assets. Other common collection sources are real estate (except for equity in a personal residence, which may be protected by your state's homestead law), bank accounts, and stocks and bonds.
Collecting From Businesses
Collecting from solvent businesses isn't usually a problem, because most will routinely pay any judgments entered against them. But if a business doesn't voluntarily pay your judgment and it takes in money on a daily basis, chances are excellent that you can legally order the sheriff or marshal to grab this cash right out of the debtor's bank account or cash register (this is called a till tap).
It can be difficult to collect from fly-by-night businesses, however. If the business has no identifiable office or headquarters in your state or has already filed for bankruptcy, you may be out of luck when you try to collect.
Debtor protection laws keep you from seizing and selling many types of property, including the food from the debtor's table, the clothing from the closet, and the TV from the living room.
In many states it will even be impossible to seize and sell the debtor's car, because a debtor's motor vehicle is protected from being sold to satisfy a debt if the amount of equity in the vehicle is below a certain amount (often about $2,500, but sometimes much more, depending on the state). And if the debtor uses the vehicle for business purposes, it is often exempt from being grabbed and sold, no matter how much equity the debtor has.
If a person or a business declares bankruptcy under Chapter 7 of the federal Bankruptcy Code and lists you as a creditor, your right to recover a court judgment is cut off. Exceptions to this general rule are if your judgment was based on a secured loan and if you obtained a judgment because you or your property were injured by the willful and malicious behavior of the defendant.
In sum, here are some positive indicators that you probably will be able to collect a court judgment.
In contrast, you're likely to have trouble collecting from a person (or business) with no income, assets, or fixed address, or who's about to file bankruptcy.
For a Confidential Consultation Call Attorney Timothy L. Dave at: (321) 281- 5814
Republished with Permission © 2009 Nolo