A judgment in favor of a plaintiff who is owed a debt is not a promise that the debtor will pay. This aspect of litigation is often misunderstood, and the possibility of never collecting on the debt should be a big part of an individual’s consideration of whether or not to file suit.
Judgments confirm that a debt is owed, and promise assistance from the courts to collect debt. The work to ensure payment, however, falls to the plaintiff and any retained legal counsel. Regardless of a plaintiff’s reasons for filing suit, postjudgment collection efforts often require just as much time, resources and energy — or more — than the suit itself.
In the post-judgment phase of litigation, a plaintiff can choose from several legal options. Depending on the circumstances, the chosen strategy should align with a plaintiff’s goals and willingness to invest in resolution personally and financially.
Investigate the debtor’s assets
Provided that a debtor has a job, property or money in the bank, the first step in collection should be to find out the value of the debtor’s assets and where they are located. A basic or in-depth investigation can be conducted on the debtor’s residence, bank accounts, employment, and other assets of value.
The investigation should include whether or not other creditors have placed liens on the debtor’s property and if they subordinate the plaintiff’s judgment. For example, a bank may have secured collateral based on a loan and may have first rights to that collateral.
The plaintiff can also request a debtor examination during which the debtor is sworn in by a judge to testify concerning his or her assets. If the debtor does not show up for the examination, he or she is subject to a warrant. If the debtor doesn’t tell the truth about assets, he or she could be held in contempt of court. In addition to finding information about the debtor’s assets, one goal of the debtor examination is to create inconvenience, discomfort or additional costs for the debtor in order to extract payment, but there are other ways to pursue resolution.
Choose a collection strategy
The most common legal strategies for debt collection include garnishments, liens and real property seizure. Wages, dividends, and tax return refunds can begarnished. And liens can prevent a debtor from selling or refinancing property until the debt is paid. Real property like vehicles, equipment or land can be seized and auctioned off. Arrangements can be made with a willing debtor to create a payment plan to pay off the debt, making the repayment less burdensome. However, debtors can also choose to declare bankruptcy, effectively freezing assets until the bankruptcy process is complete and requiring creditors to line up in order of legal importance.
Leverage time in order to collect
Another post-judgment strategy is to wait. Judgments in Michigan have a 10-year window, and plaintiffs have the option to renew a judgment for another 10 years. Even if a debtor has no way of paying back a debt now, eventually many debtors recover — financially making later collection efforts feasible. Delaying collection often gives the debtor a sense of comfort, and he or she may even forget about the judgment. Collections enforcement that occurs years after the judgment can prove more successful when debtors have acquired assets and, thus, have something to lose. Liens and garnishment strategies will prove more effective to achieve resolution.
Write off the debt
A final post-judgment strategy is to write off the debt. Some plaintiffs decide to sue in order to send a message to the debtor or the market that they are validated in their demands for payment. They want to maintain credibility in their personal reputations or in a business with their other customers and suppliers.After a judgment in their favor, plaintiffs can decide whether the costs to pursue collection, including distraction in their lives or businesses as well as legal fees, are worth the effort. In some cases it is. In others, the plaintiff is ready to move on, feeling that justice was served.
Jim Komondy practices in litigation law at Law Weathers.