Bankruptcy Judgments And How To Make Money With Them

By Mike T Warren

Before you sue, make sure your opponent is solvent and has assets you can grab.

Even after you win a lawsuit, you still have to collect the money you were awarded: your judgment. And the court won’t collect it for you — when it comes to collecting what you’re owed, you’re on your own.

Collecting from solvent individuals or businesses isn’t usually a problem, because most will routinely pay any judgments entered against them. If they don’t, there are a number of legal ways to force them to pay.

Unfortunately, some people and businesses sued in court are either broke (lawyers say “judgment proof”) or so adept at hiding their assets that collecting your winnings is likely to prove impossible.

Protected Property

When a deadbeat debtor won’t pay voluntarily, collecting your judgment can be difficult. Debtor protection laws keep you from seizing and selling many types of property, including the food from the debtor’s table, the clothing from her closet, and the TV from her living room.


Vehicle Protections

In many states it will even be impossible to seize and sell her car, because a debtor’s motor vehicle is protected from being sold to satisfy a debt if the amount of equity in the vehicle is below a certain amount (often about $2,000). And if the vehicle is used as a part of the debtor’s business (is a tool of her trade), you probably won’t be able to grab and sell it, even if the debtor’s equity is higher.

Bankrupt Debtors

If a person or a business declares bankruptcy under Chapter 7 of the Federal Bankruptcy Act and lists you as a creditor, your right to recover a small claims court judgment is cut off, along with most of his other debts. (If your judgment was based on a secured loan, however, you do have the right to recover the property pledged as security.) One big exception to this general rule exists if your judgment was obtained because you or your property were injured by the malicious behavior of the defendant: In this situation, your right to collect your judgment should survive the bankruptcy (but you may need to intervene in the bankruptcy proceeding). An example of malicious behavior would be someone getting drunk and then attacking and injuring you.

Garnishing Wages

If a person fails to pay a judgment voluntarily, the easiest way to collect is to garnish up to 25% of his wages. (The wages of very low income workers, however, are exempt from garnishment.) But you can’t garnish a welfare, Social Security, unemployment, pension, or disability check.

Levying on Deposit Accounts

Bank accounts and stocks and bonds are other common collection sources.

Levying on Real Estate

Real estate other than the debtor’s primary residence is another source for collection. (In many states, “homestead laws” prevent you from getting at the judgment debtor’s equity in a residence.)

Collecting From Business Receipts

Where a business is the judgment debtor, you can often collect by ordering the sheriff or marshal to take the amount of the judgment right out of the debtor’s cash register (this is called a “till tap”).

Another good source is a valuable piece of equipment or machinery owned by the business, which you can order sold to pay off your judgment.

But if the business is a fly-by-night outfit with no permanent address or obvious collection source, such as a cash register or owned fixtures or equipment, you may be out of luck (lots of businesses lease business equipment or take out a secured loan to purchase it).

Finally, in some states, if your lawsuit is against a contractor who has a current license, you may file the judgment with the state licensing board. If the contractor doesn’t pay off the judgment or post a bond, he faces losing his license.

You can collect your judgment for years. If the defendant is not working but likely to get a job in the not too distant future, be patient. Laws in many states allow a judgment to be collected for ten to 20 years from the date it is entered, and you can usually apply to have this period extended.

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