Somebody owes your business money. You retained counsel, got a judgment for that amount…now what? The debtor is not just going to write you a check, and in most circumstances you will need to take further steps to get the money rightfully owed to you. But is it worth it?
An important consideration in determining whether to pursue litigation to collect the judgment is the ultimate recovery. It would be easy to assume that, absent a settlement, this is simply the amount of the judgment awarded.
Unfortunately, it is not that simple. There is no guarantee that the amount of recovery will equal the amount of the judgment. Even if it does, it is still important to consider both the time and expense that may be involved in collecting that amount. By taking the below considerations into account before proceeding to attempt to collect on a judgment, you can better evaluate whether it makes sense to do so.
1) Can you even collect on your judgment?
Perhaps it goes without saying, but you cannot collect money that simply is not there. If the person or entity against whom judgment is entered has no money, there will be nothing to collect. Also, collecting on a judgment may be prohibited by law, even if the person or entity against whom you are seeking to collect has some money or assets.
For example, in some circumstances, bankruptcy can allow for a judgment to be discharged, or avoided altogether. In other circumstances, bankruptcy may result in partial payments of amounts owed, including a partial payment of a judgment following a lawsuit. Regardless of the outcome of a bankruptcy proceeding, the mere filing of a bankruptcy case (or petition) creates an automatic stay that prevents collection efforts while it is in effect (usually throughout the bankruptcy case) unless the efforts are specifically permitted by the bankruptcy court in which the bankruptcy case was filed.
In addition, while the mere filing of an appeal of a judgment does not prevent efforts to collect on the judgment, collection on a judgment may be stayed (or put on hold) pending an appeal which could delay collection efforts by months or years.
2) Are you in the right place to collect on your judgment?
Even if there is no legal bar to collecting on a judgment, there can still be a number of hurdles to actually recovering the amount of the judgment. The first hurdle to collecting is being in the right place to do so. In general, the order of a court in one state cannot compel action in another.
So, if you have a judgment rendered in an Ohio state court against a person or entity with no money or assets in Ohio, you will need to file your judgment in a state where there that individual has recoverable money or assets. This process is generally fairly straightforward and consistent, but still increases the time and costs of collecting on a judgment.
3) How do you recover?
Once you are in the right court, there are three primary methods of recovering on a judgment: wage garnishment, property liens, and a bank account lien or garnishment.
While the specific laws of each state vary as to all three, generally wage garnishment allows for a set amount of an individual’s paycheck (generally up to 25% of disposable, i.e. after-tax, income in Ohio) to be withdrawn by his or her employer and paid to the person holding a judgment against them until the judgment is fully paid. In Ohio, there is a statutory procedure for wage garnishment that requires notice to the individual and a garnishment order from the court, and provides the opportunity for the individual to request a hearing regarding the garnishment.
The two other common methods of collection—property liens and a bank account garnishment—apply to both individuals and entities. A property lien attaches to a property owned by the individual or entity subject to the judgment and provides that the judgment amount may be recovered upon the sale of that property. A bank account garnishment allows money to be taken out of a bank account to satisfy the amount of a judgment. Both are subject to limitations, including limitations that a certain amount of money remain in the bank account being garnished.
Effectively utilizing these collection methods generally requires knowledge of where the individual or entity subject to judgment works, owns property or banks. That information may not be generally known, and often cannot be learned during litigation prior to judgment. While there are various means to learn this information post-judgment, any need to do so will delay recovery and create additional cost.
This is a primer of important considerations, and not an exhaustive list of all restrictions that may apply to collecting on a judgment in specific circumstances. You should consult with an attorney familiar with the applicable regulations and related litigation before initiating any collection efforts.
This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.
Barnes & Thornburg LLP is a national, Midwestern-based business law firm that strives for a more entrepreneurial and cost-effective approach both to client service and its own business. Read more Metropreneurial Legal Insights.