When the person who got a judgment against your business calls you, you are likely to think, “oh crap, what do I do now?” You can pay it and have them release it. That is an option. You could call the judgment creditor and work out a payment schedule. However, consider that they are professionals at settling judgments and you are not. Some questions to ask before you write the check:
- Is the balance they quote correct?
- Do you owe interest and legal fees and if so, how much?
- Can you settle for less, and if so is it a good deal?
- What happens after you pay?
- What does it mean to get a judgment released, and how long does that take?
- What if it never happens?
Figure Out Exactly Who to Pay
When you get a judgment against you for the first time, the first question is usually “Who do you pay?” Get a copy of the judgment from the court where it was entered, and call the law firm that handled the lawsuit. If they still have the account, great, if not, call the creditor directly. You might also end up with a third-party judgment buyer, because sometimes a creditor sells their judgment to a third party. You just keep calling around until you figure out exactly who to pay.
You might hope to shortcut all of this by pulling your credit report. The credit report is not your friend here. It tells you the name of the creditor when judgment was entered, the date of the judgment, maybe the case number. But it does not tell you who is collecting the debt now. The amount is what you owed when the judgment was entered, and there may well be more interest and legal fees owed now. Does it even allow post-judgment interest and extra fees? The credit report does not tell you.
How Much You Owe
Once you know who owns the judgment and who handles it - whether it’s an in-house department, a collection agency, or a law firm - then call up and ask them what the balance is on it. They’ll tell you. Is the balance correct? You won’t know. It probably is, but you won’t know. Most creditors are honest, a few… you wouldn’t buy a used car from them.
The only way to know for sure how much you owe is to calculate it yourself. Read the judgment carefully. It specifies exactly how much you owe as of the judgment date, and it says if interest and legal fees may be added afterward. If so, do the math. Even if you get it right the creditor is generally allowed to add any legal fees they incurred after the judgment, so even after you’ve done the math you’re taking the creditor’s word that the amount they say is appropriate and legal under the judgment.
“Should I pay in full for this judgment?” you ask. Most of the time, you don’t have to. You can negotiate a reduced payment. But how will you know, when you negotiate a reduced payment on your own, that you got a good deal? You won’t. The people who collect on judgments usually work on commission. You pay more, they get more.
Release of Judgment
Then there is the part most owners never think about: getting the judgment released. Once you’ve paid a judgment in full or up to the amount you settled for, the creditor is required to file a document called a release of judgment in the court where the judgment was issued. Sometimes they’ll also file a copy in the real property records. The release says the judgment has been released. It might say that the judgment was paid in full, or settled for a reduced amount, but it doesn’t have to. You don’t have to do anything, the creditor is required to file it and they all do. Most file within 30-60 days of when you finish paying it off.
What if you can’t wait that long, say because you are supposed to close on a deal next week? Ask them to do it sooner. They might, and they might not. The creditor’s going to see you as one thing, and one thing only: you are a way they can make money, and the more desperate you are, the more they will take from you. If you need it in 2 days instead of 60, they’ll probably give it to you but you’ll pay for it.
Will the judgment come off your credit report once it is released? Not right away. It’s sometimes difficult for the credit bureaus to pick up on a release and update reports. Sometimes they don’t. In that case, the report won’t be changed. But if they do, it doesn’t necessarily mean the judgment will be off your report. Many will remain for several more years. The best thing to do is notify each of the three major credit bureaus that the judgment was released. At the least, they’ll mark it as satisfied instead of still owed. In some circumstances and depending on the bureau’s policy, it might even drop the judgment from the report entirely.
Most people think settling a judgment is easy, but in practice it involves a surprising number of steps.
- Find out who actually owns the judgment.
- Find out who the right person to talk to is.
- Verify the balance they say you owe.
- Negotiate a settlement.
- Hope it’s a decent deal.
- Go through the process of paying.
- Get a confirmation that they’ve filed a release.
- Check your credit report to see if they actually made the update.
It’s a lot to think of, and you don’t do this every day, but the other side does.
