If you’ve lost a small claims case, you’ll pay the amount you owe directly to the winning side (often the plaintiff—the person or company that filed the lawsuit—but not always). The figure that you’ll remit, as well as the date that it’s due, will appear in the order sent to you after the trial. In this article, you’ll learn about alternative ways to pay a judgment, what could happen if you aren’t able to pay it, and how you might benefit from filing for bankruptcy.
Paying the Judgment: The Process
The small claims court system allows people to resolve legal problems in an efficient and cost-effective manner. It starts when the plaintiff files paperwork asking the court to award money for harm caused by the defendant (the person or company being sued). The defendant might file allegations, as well.
The court will hear the matter and decide the outcome. The winning side, or “judgment creditor,” will receive an award stating the amount owed. The losing party, or “judgment debtor,” is expected to pay the award to the judgment creditor. Otherwise, the judgment creditor can take steps to recover the debt using collection techniques (more below).
Other Payment Options
If you have a judgment against you, in most cases you’ll be expected to pay the entire amount in one lump sum. However, some courts will set up a payment plan if both parties agree to it at the trial. The schedule should appear on the order.
Be aware that your court might have other payment options available. For instance, California has a special small claims rule that allows the judgment debtor to make payment directly to the court. While this is an unusual practice, if it's available to you, it would be a good idea to use it. The court would have proof that you paid the creditor. You’ll need to contact your court to find out if it offers a similar program.
Paying Less Than What You Owe
You can also negotiate a payment schedule directly with the judgment creditor—or even come to an agreement that allows you to pay a lesser amount. For instance, the judgment creditor might take less if you offer to pay right away. For most, the offer would be more enticing than the prospect of chasing you down using time-consuming, and sometimes costly, collection techniques. Once you give the creditor the full or agreed-upon amount, the judgment creditor must let the court know that you paid the debt.
The Consequences of Refusing to Pay
Judgments don’t go away quickly. Your state will likely give the judgment creditor a significant amount of time to collect the debt. For instance, California law allows ten years.
Also, interest will accumulate at the rate of 3% to 12% per year, so, depending on where you live, the longer you wait to pay, the more you’ll owe. The creditor can extend the time to collect, too, by renewing the judgment. A creditor that fails to renew will lose the right to enforce the judgment.
Collection Tools Available to the Creditor
If you don’t pay willingly, the judgment creditor can take action to force you to do so by using tools such as the following:
- Wage garnishment. Your employer will deduct money from your paycheck each month until the debt gets paid.
- Bank levy. The bank will be instructed to withdraw the funds in your account up to the amount necessary to pay off the judgment.
- Seizure. The judgment creditor can take property—such as real estate and personal possessions—to sell at auction. Because of the time and expense involved, its unusual for a creditor to use this procedure unless you own valuable property free and clear.
- Till tap. The judgment creditor can instruct law enforcement to enter your business and empty your cash register.
- Keeper. This process is similar to a till tap; however, the officer will take customer funds for a longer period, such as an entire day.
(Read Delinquent Debt: What to Expect in Debt Collection for additional information.)
The Creditor Can Find Your Assets
A creditor who can’t locate your property independently can ask the court to order you to appear and answer questions about your finances. You’ll be required to disclose information such as the location of your bank accounts and real estate holdings, and whether you have any business interests. If you fail to show up for the examination, the court will likely issue an arrest warrant.
You Can Protect Necessary Property
A judgment creditor isn’t entitled to take everything that you own. Your state’s exemption statutes will tell you what you can protect. Most states allow residents to keep the things needed to work and live, such as clothing, furnishings, and a modest car. In fact, many people can keep everything that they own. Even so, some states are more generous than others. Take, for instance, Texas. The liberal exemption statutes protect everyone other than the very wealthy.
(Learn more by reading Keeping Property Using Bankruptcy Exemptions: You Don't Lose Everything.)
Judgment Proof: When You Don’t Have to Pay
Some people don’t have any assets that a judgment creditor can take. If you fall into this category, and you don’t anticipate that your situation will change, a creditor won’t be able to take action against you.
(For more information, read What It Means to Be Judgment Proof: Your Creditors Can't Collect From You)
Filing for Bankruptcy
You might be able to stop the judgment creditor’s collection efforts by filing for bankruptcy. Doing so will likely wipe out the debt if:
- you qualify for a Chapter 7 case
- your state’s exemption statutes protect all of your property, and
- your judgment is the type that you can discharge in bankruptcy.
(For more information about judgments that go away in bankruptcy—as well as those that don’t—read Personal Bankruptcy and Court Judgments.)
Finding Your Local Court Rules
While the process outlined above is fairly universal, many courts adopt additional procedures unique to that state or particular court. For instance, in some jurisdictions, the judgment creditor cannot start collection efforts until 30 days passes. Others have a ten-day waiting period. Another only recommends waiting until the applicable appeal period expires.
You’ll find your court rules on your court’s website. To locate the information, look under the heading “Collecting the Judgment” or a variation thereof.
Questions for Your Attorney
- Am I judgment proof?
- Can you negotiate down the judgment on my behalf?
- Can I get rid of the judgment in Chapter 7 bankruptcy?