Tips For Collecting After A Court Judgment

In my last column, I passed along advice from industry experts on the how and why for not giving up on bad debt. Much of that discussion centered on identifying debt that lies below a company’s “litigation threshold” — the minimum amount your company is willing to try to collect through suing the debtor in court.

Unfortunately, there will be times when an unpaid balance is large enough to warrant the time and expense of going to court. Getting the judgment turns out to be only half the battle. Collecting on it says Daniel Spilotro, managing member of Spilotro Law Group, is often the more difficult aspect. “Enforcing a judgment can require a light or heavy hand. It all depends upon the debtor’s cooperation or lack thereof.”

Spilotro lays out some tips for improving the likelihood of collecting those funds in an article aptly entitled “After the Judgment,” which appears in the “Special Report on Credit and Collections” included in the March-April issue of MFM’s member magazine, The Financial Manager (TFM). MFM makes a complimentary digital copy TFM available on its Web site during the cover dates.

While most state laws provide a framework for collecting a judgment, Spilotro warns that “there are many issues that face creditors as they seek to enforce judgments in the 21st century.”

One often overlooked issue is ensuring the finality of the judgment. “A judgment must be final and enforceable before any post-judgment collection proceedings are initiated. Failure to comply with this step can result in voiding your collection proceeding and wasting any costs used.”

Once the court judgment is entered, and the parties agree to make payment arrangements, these terms can be entered into a court order. “In these instances, any further enforcement for failure to comply with the payment order will require additional court intervention.”

Another option for creditors who have received a judgment is to record that judgment against the debtor’s real property. Spilotro points out that this can be accomplished for a nominal fee and allows creditors the ability to cover all potential assets of the debtor. The downside of this, in the case of commercial debts, is that most companies do not own the property where they do business.

The Citation Option

In those situations where efforts to obtain payment voluntarily have failed, Spilotro says the next step will involve seeking a citation to discover assets.

This begins with filing of the citation with the court and serving it upon the judgment debtor and/or third-party respondent through a process server. A third-party respondent is typically someone that possesses assets belonging to the judgment debtor that can be used to satisfy the judgment. One example of such assets is credit card payments to be deposited into a debtor’s account by a bank.

In these instances, Spilotro suggests notifying the judgment debtor only after the third-party respondent has been served.  This will help prevent the debtor’s attempt to transfer the assets to avoid seizure.

The respondent to the citation will then be required to appear in court answering questions and producing documents pertaining to assets in its possession that may be used to satisfy the judgment. Spilotro has found that third-party respondents will usually avoid court appearances by producing the records in advance of the hearing.

Following the hearing, the judgment creditor may need to continue the proceeding in order to:

• Secure further asset disclosure.
• Request a turnover of the disclosed assets from the court.
• Dismiss the proceeding if there are no assets available for seizure.

“Issuing a citation to a third-party respondent is the most commonly used method of collecting a commercial judgment,” Spilotro has found. “Everyday businesses transact with other businesses and assets are exchanged. As such, judgment creditors consider them prime targets as they collect assets and satisfy an unpaid judgment.”

The Sheriff’s Sale

Despite the effectiveness of a citation process, some creditors may find it necessary to place levies on the judgment debtor’s real and personal property through a sheriff’s sale. Spilotro explains: “This process first requires the judgment creditor to present a certified copy of the judgment along with a bond to the sheriff to execute the levy. The bond is required to protect and hold harmless the sheriff in the event of a wrongful levy. It does not protect the judgment creditor.”

The judgment creditor will be required to present a list of what to levy to the sheriff, such as goods, merchandise, fixtures or a specific automobile. The sheriff then executes the levy at the judgment debtor’s place of business to determine if there are enough assets to satisfy the judgment. Spilotro advises having the sheriff tag the inventory and “either have it removed to a secure location pending sale or instruct the judgment debtor not to remove or sell any of the tagged inventory.”

If the judgment debtor still hasn’t made arrangements to pay the judgment the levy process will conclude with the sale. “Prior to the sale, the judgment creditor should ensure that there are no secured creditors that may hold a superior interest to the goods that the sheriff is about to sell.”

In Spilotro’s experience, the prospect of losing his business will more often than not get the judgment debtor to make payment arrangements. The sale may need to be continued from time to time in order to keeps pressure on the judgment debtor to quickly resolve the underlying judgment, which Spilotro says is typically acceptable to the sheriff.

Because the levy process is “fraught with risk for the judgment creditor,” he has found it is a highly effective method for securing payment and as a result “the levy rarely comes to fruition.”

Discovering the Assets

Because these processes depend upon validating that the judgment debtor can pay the debt, Spilotro provides the following suggestions for discovering assets:

• Examine the company’s website for such information as its customers, who could represent third party respondents.
• Check to see if the company accepts credit cards or online payments, which allows you to target the credit card companies that process the transactions and/or the processing companies.
• Look for indications that the company has been working with third parties to assist them in marketing daily deals to targeted email users. These parties often accept funds on behalf of the judgment debtor.
• Check your state’s unclaimed-asset website for indications of funds owed to the debtor that are now in the state’s possession.
• Issue a third-party citation to the debtor’s landlord, which may lead to the turnover of a security deposit or rent that was paid during the citation lien period.
• If your state allows the placement of an independent third party to administer a “till tap,” cash can be removed from the debtor’s register to settle the debt. As you would expect, this tactic is very likely to get the debtor to enter into a voluntary payment arrangement “within a matter of days.”

For a complete copy of this article, please feel free to email the Spilotro Law Group.

Spilotro will number among the experts featured at Media Finance Focus 2013, the industry’s primary source of professional education for financial and business executives. The 53^rd annual conference of MFM and BCCA, the media industry’s credit association, will be held in New Orleans May 20-22. Our theme this year is “Unmasking Secrets to Success.” We will have a full track of sessions designed to reveal the best ways to improve your company’s credit and collections programs. More information may be found on MFM’s website.  

If you are unable to join us in the Crescent City, you can be assured that I will be using a number of the topics covered there as inspiration for future articles.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.