Summary: Judgment creditors have the legal right to collect in-house. But in-house collections generally don’t produce the best results. In fact, the vast majority of money judgments are never fully paid.
Winning a money judgment in a civil lawsuit sets a judgment creditor up for what can be a long and arduous collection process. Unfortunately, an estimated 80% of money judgments are ultimately never collected. Oftentimes, failure occurs after a judgment creditor has unsuccessfully tried to collect in-house.
Judgment creditors with little-to-no experience in collecting money judgments are at a significant disadvantage from day one. This is the primary reason we recommend leaving collection to either an attorney or a specialized collection agency like Judgment Collectors. Collection agencies are especially adept because of their experience, knowledge, and access to tools and information.
Why do judgment creditors fail to collect in-house? Here are the top five reasons:
1. Ignorance of Statutes of Limitation
All money judgments come with a statute of limitations. Statutes limit the amount of time a creditor has to collect. On average, statutes of limitation run between 7 and 10 years. In simple English, money judgments have a shelf life. Most states do not allow them to go on forever.
Kentucky is a good example. Their statute of limitations is 10 years. An unpaid judgment can be renewed prior to expiration, but only once. Furthermore, the renewal term is just 5 years. That means a Kentucky judgment creditor has a total of 15 years to collect. At the end of that term, any uncollected monies are no longer collectible.
Being ignorant of the statute of limitations leads to in-house collection teams not being urgent enough about collection efforts. In fact, there is the temptation to ‘close the file’ on a case once the trial phase is over. Time passes, and the in-house collection team doesn’t realize the lateness of the hour until it is too late to launch any meaningful collection efforts.
2. Inadequate Asset Discovery
Here at Judgment Collectors, we like to say that discovery is everything in successful collection. Discovery is the process of learning all relevant information about a debtor’s assets and income. That information lays the groundwork for how we proceed with collection efforts.
In-house collection teams tend to rely exclusively on information provided by the debtor either before the court case or immediately following it. But more often than not, this information is inadequate for collection purposes. Outdated information may not account for:
- A change of employment
- Changes in the debtor’s banking
- New assets the debtor did not previously have
- Additional sources of income beyond traditional employment
Judgment debtors are no different from the rest of us in the sense that things change in their lives. Therefore, aggressively pursuing discovery after litigation is necessary to effectively collect. Inadequate discovery only makes a collection team’s efforts more difficult.
3. Losing Track of the Debtor
Like anyone else, judgment debtors change jobs. They buy homes, move, and otherwise change their financial circumstances. They get married, have kids, and get involved in all sorts of routine activities. Unfortunately, it is too easy for in-house teams to lose track of the debtors they are trying to collect from. A debtor moving and failing to provide forwarding information can be enough to throw collection efforts completely off track.
We have a tool in our industry known as skip tracing. It is a process we can use to find debtors that creditors have lost track of. It is a tool that most in-house collection teams are either unaware of or do not know how to utilize. When they lose track of a debtor, their chances of successfully collecting go way down.
Skip tracing can find debtors whether they have moved across the county or to a new state. But leveraging skip tracing effectively takes knowledge and experience that most in-house teams lack.
4. Bankruptcy Discharge
Unfortunately, some money judgments go forever uncollected because the debtors behind them file for bankruptcy. Equally unfortunate is that money judgments often trigger bankruptcy filings. A debtor saddled with a significant monetary award he believes he cannot pay finds bankruptcy quite attractive.
Whether a debtor files under Chapter 7 or 13, most states allow for an Automatic Stay to prevent further collection efforts. That means once the bankruptcy is entered into court, a judgment creditor must immediately cease any and all collection efforts.
Wage garnishment must immediately stop. If a lien has been placed on a debtor’s personal property, it cannot be enforced. A creditor certainly cannot file for writs of execution until the bankruptcy has been settled.
There are certain things a judgment creditor can do during bankruptcy proceedings to protect their financial interests. But in-house collection teams do not tend to have the knowledge required. Once again, an attorney or collection agency does.
5. Lack of Judgment Domestication
Yet another reason so many judgments go unpaid is the lack of proper domestication. Domestication is the process of entering a judgment in a jurisdiction other than the one where the original case was heard. It is necessary when a creditor wants to go after assets located in other jurisdictions.
Consider a judgment debtor who owns real estate in a neighboring county. In order to leverage that real estate for collection purposes, a creditor must domesticate the judgment in the neighboring county. Failing to do so keeps the debtor’s property off limits.
In-house teams may know very little about domestication, if anything at all. They may just assume that property located in other jurisdictions cannot be touched. That is unfortunate because domestication is a fairly simple process that can realize tremendous benefits.
Professional Collection Is an Investment
Judgment creditors may not want to bring in an attorney or collection agency because they do not want to spend the money. It is a reasonable concern. But think of it this way: paying for professional collection is a financial investment with a return attached. Professional collection is a service worth paying for when you consider that in-house collections might ultimately fail.
We recommend bringing in a collection agency, like Judgment Collectors, as soon as possible. The sooner an agency can get started, the greater the chances of collecting the full amount.
FAQs
How much does it cost to hire a collection agency?
Collection agencies tend to set their rates based on a percentage of what they collect. Here at Judgment Collectors, we work on consignment. We get paid only if we manage to collect.
How many times can a judgment be renewed?
The rules surrounding renewal vary from one state to the next. Some states allow only a single renewal, while others allow multiple renewals.
What types of assets can be leveraged for collection?
In most states, wage income and other cash assets are on the table. So are certain types of personal property, including real estate, jewelry and collectibles, etc.
Can judgment creditors go after debtor residences?
In most states, a debtor’s primary residence is protected by a homestead exemption. However, protection typically applies only up to a certain value, which varies by state. Amounts exceeding the applicable homestead exemption may be subject to collection.
Do creditors need further court assistance to collect in-house?
Court assistance is necessary if a creditor wants to utilize garnishment, properly liens, or writs of execution. A court might also intervene during the discovery phase if a creditor doesn’t cooperate.