At What Point Do You And Your Clients Determine To Start The Judgment Process If Prior Collection Efforts Have Been Unsuccessful?
If we send demand letters, make phone calls, and still cannot resolve a debt — whether the debtor is ignoring us, unwilling to pay, or otherwise being unreasonable — the next step at Matthews Law Firm, Inc., is to discuss filing a lawsuit with our client. There are certain factors to consider before we file a lawsuit. Primarily, do we think the debt is collectible? In some cases, it may not be worth a client’s time, money, or effort to pursue a debt. That can happen where the debtor is going out of business and where there is no guarantor, where the debtor has already been served with other lawsuits, where there are tax liens, or where the debtor is insolvent. Sometimes the best decision is to just write off a bad debt.
Obviously, we hope that is not the case, but it does not do us or our client any good to pursue uncollectible amounts, especially (as in most collection cases) we are working on a contingency basis where we are paid only if we recover. If we suspect there are collectability issues, we can have an asset investigator run a report on the assets and liabilities of the business (including the existence of other lawsuits). We will do that if we are unable to secure this information directly from the debtor.
Even when a debt is collectible, we also need to consider whether our attorney’s fees are recoverable. For example, if we are suing for $10,000; the client probably does not want to spend $11,000 to collect the $10,000 that is owed. However, if we agree to work on a contingency basis, that is not an issue because the client is not advancing attorney’s fees. They will be paying out-of-pocket costs, but these are generally less than $1,000-1,500.
So, that is another pre-lawsuit consideration. If we’re working on an hourly basis, can we get our attorney’s fees back? Does it make economic sense for the client to pursue this?
Lastly, we look for any issues with our documents. Is the debt too old? Is there a valid defense? Is it possible that we sue, only to have the debtor file a cross-complaint against our client? If there is a chance the client might file a lawsuit and get sued right back, it might be best to just let it go especially on smaller claims. Maybe we will push for an early settlement instead or perhaps a mutual release agreement with the debtor and just walk away if that is the correct thing to do for the client.
Overall, we work through the process on a case-by-case basis, depending on how much is at stake and how aggressive the client wants us to be.
Enforcement Of Judgments
Let’s say we wrote demand letters and made phone calls but were unable to resolve the debt. The client gave us the go-ahead to file a lawsuit, the debtor responded or didn’t respond; either way, we won the case and obtained a judgment. If the debtor still hasn’t paid, what do we do next?
That’s where the California Enforcement of Judgments Law (“EJL”) comes into play. The EJL provides different tools that we can use to collect on judgments against both businesses and individuals. Depending on whom we are dealing with, we will analyze the situation and then use the appropriate enforcement tool.
If we have a judgment against a personal guarantor who is an individual, we can put on a lien on their home, if it is located within California. When the individual later attempts to sell or refinance the home, our lien will need to be paid. Over the years, we have had many judgments satisfied in that manner. Judgment debtors are notified in writing when a lien is applied and this sometimes causes them to call us to settle.
We can perform a bank levy, which is generally one of the first tools we recommend, whether it is a business or an individual. If we don’t have the debtor’s banking information, we can have our investigator try and locate it. Although discussed in greater detail below, one of the good things about a bank levy is that it is relatively low cost and the debtor doesn’t know in advance that it is coming. We’ll have the sheriff serve the bank(s) where they have an account — which often leads to a panicked phone call from the debtor once they realize that their funds have been frozen. By this time, the levy has already occurred and it is too late for them to attempt to withdraw their funds.
Bank levies are a great opening shot and even if we do not collect the full amount using that tool, it generates a settlement in many cases. The debtor will either voluntarily repay the remaining balance at that point or work out a payment plan. Either way, they are now definitely incentivized to comply because they have received a sample of what we can do if they do not.
What Does The Client Need To Know When It Comes To The Steps Of The Levy Process?
Other than the fact that it is a legal process, clients should be aware that it is not an extremely time-consuming process but can still take time. For example, most bank levies take between 30-60 days to process. We cannot make the sheriff go faster, and some sheriff’s offices are much slower than others. We know who we are dealing with, so we try to set realistic expectations for our clients by letting them know in advance how much time we think it will take.