Adams, Evens, & Ross Newsletter #3:
SMALL CLAIMS COURT
You have sued your debtor. You have waited for months. You went to Small Claims Court and finally have a Judgment. Now what? Well, you are about to learn an unpopular fact: Less than 5% of Judgments are ever collected.
I have had clients sue in small claims court and be awarded a Judgment; then they call me and ask me if I can collect. The fact is, probably not. Neither can your attorney. I have to tell them that looking for assets now would be like looking for a needle in the proverbial haystack. Next time, use either a Large Commercial Collection Attorney or a Commercial Collection agency first. 80% of the time it will get collected before you would go to court. If the account does go to court, it will be litigated in State Court rather than Small Claims. This forces your debtor to also spend money on an attorney. The debtor has to pay by the hour. You may have to pay a small suit fee and court costs, but the bulk of your funds are paid only if your attorney collects.
Another good reason to use a Commercial Collector or a Collection Law Firm is you would know where the debtor's assets are before you get your judgment. Let me take a moment and explain why this is important. You have a debtor that will not pay. You sue them. It takes 6 to 12 months to get to court. You get your judgment in about a year. The whole time that you are waiting for it to go to court the debtor is selling off assets, and moving assets into a new corporation. By the time you get a judgment, the company is an empty shell. If you knew from early on where their assets were you could petition the courts to make the debtor show you where they are currently located and what happened to them.
A good collection agency or collection law firm will be locating assets while the suit is in process. Then, once a judgment is entered, they move fast. We have seized 100's of thousands of dollars from checking accounts before the debtor had a chance to realize what happened. Yes, you may have to give up 1/3 of the collections and walk away with 67% of what was owed, or you could walk away with 100% of a Judgment that will never be exchanged for a dime.
The only time I would recommend small claims is when the balance is under $500.00. The cost of State Court would not make sense on a claim of that size, but the $50.00 that you spend would be worth the risk of getting an empty Judgment.
You could, however, use Small Claims as a collection tool. Call your courthouse and have them mail or fax you a few blank suit forms. Fill in the blanks and then send a copy certified mail to your debtor along with a letter that states you will file this in court in 10 days if you do not have a check for the full amount. This works better than actually filing a suit in most cases. Then, if they do not pay, you file the suit. Just remember, the chance of getting paid on your Judgment is slim.
If you would like to know if you have a client that has been sued, please contact us. We will do a public record search and let you know within 48 hours if your debtor has done this to others.