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How to Determine the Likelihood of Collecting on a Judgment

posted on 2012-11-14 by Dean Kaplan

Just winning a lawsuit against a non-paying business customer does not guarantee that the debt will actually be collected.  In fact, depending on the circumstances of the debtor, there is a significant chance that no money will be collected, and the creditor's loss will be even higher as they will also be out the costs of the lawsuit in addition to the original debt owed.  For this reason, it is important for any creditor to determine the realistic chances of collecting on a judgment before any lawsuit is pursued. 

Below is a list of questions that need to be answered when determining the likelihood of collection: 

·         Will the customer still be operating by the time the judgment collection process begins?  (Remember, the legal system can be extremely slow and time consuming).

·         Will the customer’s cash flow or assets provide the monies needed to satisfy collection of the judgment?

·         Does the customer have secured creditors which may potentially block the collection of the judgment?

·         Does the customer have any previous judgments or liens attached to the business which may increase the difficulty of collection or indicate that others have not been able to figure out how to collect judgments?

·         Is there personal liability for the company's obligation, creating a secondary source of repayment? 

·         Does the person with personal liability possess income or assets which could be used to satisfy the judgment?

·         Does the owner of the business have personal assets that could be put into the company even if the company is not personally liable for the outstanding debt?

·         Can the owner of the business and/or the guarantor be found so that pursuit of the judgment collection can occur?

The more of these questions that can be answered, the more accurate the estimate of judgment collectability will be.  It is harder to justify the cost of a lawsuit if you aren’t reasonably confident that the judgment can be collected. 

We have several free resources on our website, including two short videos explaining commercial collection litigation and the judgment collection process as well as downloadable infographic that guides you through the process of determining if a judgment is likely to be collectable.