Counting the Financial Cost Before Attempting to Collect a Judgment

Winning a money judgment against another party could go a long way toward correcting a known wrong. But in order to get what is owed, the creditor must enforce the judgment. In other words, the creditor needs to collect. That is sometimes a lot harder than it sounds. So it’s in a creditor’s best interests to count the financial costs of doing so before making any collection attempts.

Someone new to judgment collection might just assume that the associated costs are irrelevant because they can be passed on to the debtor. That may be true in theory. But in practice, it is another matter.

When Debtors Resist Paying Their Debts

The reason it’s not wise to assume collection costs are irrelevant is pretty simple: judgment debtors often resist paying their debts. Take a typical landlord-tenant dispute. The reason the landlord took the tenant to court in the first place was to collect back rent that had never been paid. If the tenant were not resisting payment, there never would have been a court case.

Debtors of all sorts don’t necessarily cooperate with civil judgments. Some cannot because they simply don’t have the financial resources. Others won’t because they either think they don’t have to or assume that they can wait out a creditor long enough to get away without paying.

It Can Take Time to Collect

Creditors need to face the fact that it can take some time to collect. The more time it takes, the more money a creditor tends to spend on collection efforts. Time is actually a creditor’s enemy because it gives the debtor more opportunity to avoid paying. As for the costs that creditors incur, here is a brief list that should not be considered conclusive:

• Court Costs – Should a creditor decide to go back to court to get something like a writ of execution, there will be additional court costs involved. The creditor will have to pay filing fees as well as his attorney’s time.

• Asset Searches – It is sometimes necessary to run asset searches using proprietary resources. Those resources cost money. A creditor often needs to buy the information he wants.

• Employee Labor – If a creditor is a business, the business may have to pay employees to work on debt collection. Every minute spent on collection efforts adds to the cost of collection.

• Attorney and Agency Fees – Creditors who choose to turn collection over to an attorney or collection agency must pay the appropriate fees for doing so. Attorney’s fees can be based on an hourly rate or as a percentage of what is ultimately collected.

Judgment Collectors, a Utah-based collection agency specializing in judgments, explains that collection agencies tend to either purchase judgments as assets or work on consignment. A purchase is likely to yield pennies on the dollar. Meanwhile, a consignment arrangement tends the base fees on the amount collected.

Increasing Costs Over Time

As previously explained, time is a judgment creditor’s enemy. Collection costs tend to add up as the days go on. Managing to collect within six months is likely going to be a lot cheaper than pursuing collection for five years. Is it really worth pursuing an unpaid judgment for that long?

It might be if the amount of money is substantial. Otherwise, collection costs could outweigh any amount actually paid.

Counting the financial costs prior to collection might persuade a creditor to either accept a smaller lump sum or just take his losses and move on. Unfortunately, that’s just the way it is at times. Winning a money judgment never guarantees a financial windfall.