So you’ve received a court judgment against your company. What do you do now? While this may feel like a defeat, you still have options for negotiating business debt even after a judgment is issued. A judgment is a court order confirming that your business owes a debt. It is a powerful tool for the creditor, but it is not magic. However, obtaining a judgment does not automatically transfer funds to the creditor. Just because a creditor wins a legal case doesn’t mean that they win on collections. In fact, going to court to get a judgment is often the beginning of the process for collecting on a debt, not the end. That gap between winning and getting paid is where your room to negotiate comes from.
The first thing to know about a judgment is that, to a creditor, it’s worth what you’re able to pay. At one extreme is the company that is “judgment proof.” What that means, in plain English, is that a company has no assets and it’s gone out of business to the point where it’s not going to earn any revenue any time in the future. There’s no way to collect against that company. The best lawyers check to see whether the debtor can pay even before they file a lawsuit. Most struggling businesses are not in that position. If you are still operating and still have equipment and a bank account, you are not judgment proof. The creditor can collect money from you, whether it’s from money you have right now or from the sale of any assets or over time. For a company like yours, the judgment is likely to be worth something. Maybe not enough to make the creditor want to pursue it, but it’s worth something.
Writ of Execution
To see why that matters, look at what the creditor actually has to do to collect. A writ of execution is an order from the court telling law enforcement to come seize your stuff. Your company, the debtor, could have personal property like equipment, real property like land and buildings, and bank accounts. If the other side wants that stuff, they’re going to need to figure out what you have and where it is. Maybe they’ll have to investigate, but in some cases they already learned a lot about you during the lawsuit. If your company has facilities or accounts in more than one state, the other side will probably need to get a writ of execution in each state. Any property they take might end up being sold. The proceeds would be used to satisfy the judgment.
A bank levy is how a creditor goes after the money in your accounts, and it is also obtained through a writ of execution. The creditor needs both the bank name and the branch name for this procedure. Once the creditor has the writ of execution, the law enforcement official will send a notice of levy to the bank. The official will then take over the money in the account and pay the creditor. A creditor can also go the lien route. A judgment lien normally applies to real estate, but it can also apply to other types of property, like business equipment or other personal property. If the property is sold, then they get paid out of the proceeds from that sale. And if your company is an LLC or certain kinds of partnership, the creditor may ask for a charging order. A charging order is basically a wage garnishment for businesses. A charging order allows your creditor to collect from your company on a regular basis until the judgment has been satisfied. It can be used alone or in conjunction with a bank levy or a judgment lien.
Every one of those steps means more work and cost. And they haven’t even gotten any money out of you yet. Some owners decide to oppose the creditor’s request for a writ rather than pay. That is your right, but know this: You’re going to start another round of litigation. It increases the creditor’s collection costs and consumes more of your company’s money.
Negotiate a Settlement
This is where negotiation comes in. So when the creditor—especially the one who won at trial—is the one trying to collect, the math shifts. They’re investing time and money to pursue what they’ve already won, and if that effort exceeds the value of what they can recover, you offering to pay a little less becomes a practical shortcut for them. It might be in the creditor’s interest to negotiate a settlement you can pay voluntarily if it has determined that the total cost of enforcing the judgment against you will exceed the value of the judgment itself. The creditor will want to negotiate for the best net recovery it can achieve after collection costs. That way, the creditor receives value from the judgment and saves money by not going to the effort of collecting it. The creditor and the company will have continuing leverage against each other even after judgment is entered. As a result, both sides become more inclined to settle.
So how do you approach it? First, you’ve got to be very realistic as to what the company can pay voluntarily. If you’re making an offer you’re never going to be able to make good on, you’re not doing them any favors. It’s no favor to them, and it’s not a favor to you. You want to make the offer based on what the creditor will actually net if it pursues the writ, levy, lien or charging order, after expending the money to obtain the same. Compare that to what they could get by simply not having to fight you for it. Tell them the truth about your financial limits, and point to the incentive for the creditor to avoid wasting money on a collection effort that might not pay off.
Don’t Wait
Dealing with an unpaid judgment is frustrating and can be costly to all involved. Don’t wait. The sooner you find out as much as possible about the judgment so you have time to come up with a resolution before the consequences escalate, the more options you keep. You need to be working with your attorney, working with your financial advisor. A judgment narrows your choices, but it does not take negotiation off the table.
