How do I collect a small claims judgment from a company that won’t pay?

I filed a claim against a company at small claims court and won the judgement. The debtor refuses to make any payments. What can I do?

Write a Polite Letter

Can you try to collect the judgment yourself? Don’t be too intimidated. Just write a polite letter reminding them of the judgment amount, that it grows each month due to interest, and that they can clear up the whole situation by paying it. Keep a copy of each letter you send and re-send once a month with an updated interest amount and total. If they still refuse to pay you, make monthly phone calls, politely informing them how much you are owed. Eventually some people come around.

Hard Legal Tools

But in case you suspect there might be assets you could go after, here are some ideas, roughly in order of most likely to get you some money.

If the judgment debtor owns real estate, you can use the judgment against that real estate. You’ll probably need to file proof of your judgment (in Colorado, the clerk of court will need to make you a transcript of judgment). You record it at the county land records office where the property is. A judgment lien prevents the property from being sold without clearing the judgment. It also hurts their credit. If they still won’t pay, you can try to foreclose on the lien yourself, which basically means forcing the property to be sold. Note that the foreclosure could get costly, and may mean you will need to pay off any senior mortgages or liens.

Next is the company’s bank account. Find the bank where the debtor has its account. Your county’s court clerk will probably have a “garnishment form.” Ask for that form, and a “stamp” from the clerk if one is needed. Fill it out and then mail to the debtor, and also their bank. Annoyingly, some states demand that you get a legal process server to deliver the paperwork to the bank.

If the bank and company assets remain unknown, you can try post-judgment discovery to find this out. One way to find out what assets and accounts the company may have is to force its officers to disclose the information. Under Rule 69, this can be done with “post-judgment interrogatories.” Another way is to depose the owner directly. This can be a lot of work. These are serious procedures and deserve research on the county and state legal websites. You can also use a private investigator to learn where the debtor banks.

If there are movable assets that could be sold to pay the debt, you can ask the court to issue a “writ of execution.” At that point the sheriff can get involved and, in the right situation, seize assets, have them auctioned, and pay off the judgment amount from the proceeds. Be aware that this can also be costly. You will have to pay movers, storage costs, notice costs, locksmith fees, and so forth. You may also be required to hire an appraiser to evaluate the property. Also, some jurisdictions will require a bond for the seizure.

A garnishment can also be directed to people who owe money to the company, including businesses. It’s similar to a bank garnishment, but perhaps a bit less straightforward, as non-bank companies are often unfamiliar with legal requirements, and you may need to clarify legal rules through litigation.

If a company moves assets at bargain basement prices while they are insolvent, you can attempt to file a “fraudulent conveyance” lawsuit against the recipients. This is definitely an expert territory and nearly impossible for an amateur.

The nuclear option is to sue again to dissolve the company and have its remaining assets liquidated to pay off the debt. For small claims this is complete overkill. At minimum, this requires some expertise (probably a lawyer).

You could also make a complaint to the court asking it to force the company into involuntary bankruptcy, but you and some other unpaid creditors would need to get together. I think it requires a lawyer.

If it looks like it might go to bankruptcy, just wait it out. Once they file, you can file a one or two page claim with the bankruptcy court.

Warning: these are hard legal tools. Most people need professionals to get the necessary paperwork right. Notable fees are often involved.

A simpler trick to try is telling the landlord and other major lenders about the judgment. That can put pressure on the other party to pay fast. Many commercial leases and large loans require the debtor to remedy any significant unpaid judgment within a short period of time.

Another method for getting a company’s attention is to post about the situation on customer review sites and social media. However, some people don’t respond to this.

Hiring a Lawyer or Collection Agency

If even these steps get you nowhere, you might need to bring in experts who know the post-judgment collection game, either a collection agency or a lawyer specializing in debt collection. This may seem counterintuitive since many people do small claims cases without attorneys. A debt collector can also file a negative report on the company’s credit record.

Some lawyers are willing to try to collect your judgment for a contingency fee, meaning they will take a percentage of whatever they collect. In most areas, this is 1/3 to 1/2 of what is collected.

Even so, professional help may cost you more than the judgment itself. Some agencies will not take contingency cases which may not be large enough to pay off.

The bottom line is that actively chasing a modest judgment you won at small claims court often just isn’t worth the time and effort.