Just about any organization that extends credit to customers needs to deal with late payments and defaults. It is part of the game. And hand-in-hand with both is the uncomfortable task of collecting unpaid debts. One option is to take a debtor to court. A creditor sues the debtor in hopes of obtaining a money judgment.
Winning a civil lawsuit does not guarantee payment. Furthermore, a creditor needs to spend additional time and resources on collection efforts after the fact. So why bother? Why take a debtor to civil court rather than continuing as-is.
It’s All About Collection Tools
The difference between taking a debtor to court and continuing with more traditional debt collection practices is the selection of tools creditors have at their disposal. Standard debt collection involves:
- Sending bills and invoices
- Making limited phone calls
- Making limited attempts to contact the debtor digitally
Unfortunately, the debt collectors of the past had a habit of being abusive towards debtors. So federal lawmakers got together and put consumer protection laws in place. But those laws go too far in the other direction. Today, standard debt collection is largely toothless.
Win a civil lawsuit and everything changes. Winners, known as judgment creditors, still do not have the freedom to be abusive toward debtors. But they do have access to stronger collection tools that give their collection efforts real teeth. The tools are not available without first obtaining a civil judgment.
3 Examples of Collection Tools
Judgment Collectors is a Utah agency that specializes in collecting judgments in the Beehive State and nine others. They explain that states differ in terms of the collection tools they allow. That said, here are three examples of collection tools that are pretty common across the states:
1. Garnishment
Garnishment is a court order that allows a judgment creditor to seize a portion of the debtor’s liquid assets for payment of a debt. There are two ways to garnish:
- Wages – Judgment creditors can garnish wages. This allows them to take a certain percentage of a debtor’s disposable income for payment. Wage garnishment continues until the debt is paid off.
- Bank Accounts – Judgment creditors can also garnish checking and savings accounts. This is a one-off practice that involves seizing a certain percentage of the cash a debtor has in a bank account.
Garnishment works well enough, but it tends to be the slowest way to collect an outstanding judgment. Why? Because states intentionally limit the amount of money that can be collected through garnishment.
2. Judgment Liens
A second tool for collecting is the judgment lien. Like most other types of liens, a judgment lien establishes the creditor’s claim to a certain value of the property being attached. Let’s say the creditor places a judgment lien on a debtor’s home. Should the debtor decide to sell or transfer the home to a new owner, the outstanding debt must be satisfied first.
3. Property Seizure
The most aggressive debt collection tool available post-judgment is property seizure. Certain types of property are exempt in most states. The debtor’s primary residence is a good example. But judgment creditors have access to all sorts of non-exempt property. The property can be seized by the local sheriff and sold at a public auction, with the proceeds going toward the debtor’s bill.
Collecting a civil judgment is not all sunshine in roses. It can actually be quite difficult. But a creditor might choose to pursue civil litigation because access to more aggressive collection tools seems to be the only way to get paid. Unfortunately, that’s the way it goes sometimes.