July 20, 2024

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How Civil Litigation Can Help With Collecting Bad Debts

Individual & Corporate Debt Recovery (Civil Litigation Practice Series) -  WMH Law Corporation

Just about every business on the planet has dealt with bad debts at one time or another. Bad debts are part of doing business. How a company goes about collecting them is a matter of individual preference. In some cases, civil litigation can be a tremendous help.

Collecting bad debt through civil courts involves filing lawsuits against debtors. Suits are filed at the county level, generally in the same county in which the dispute between the two parties originated. Cases can go before juries or judges alone.

The Point of Going to Court

So what’s the point of going to court over bad debts? To establish legal recognition of those debt. Outside of civil litigation, a company and one of its customers could go back and forth over who owes what. The company might insist its customer still owes $1,000 while the customer insists that he owes nothing. As long as the two parties are willing to continue arguing, there is little hope for a resolution.

Taking the customer to court gives the company an opportunity to establish the legitimacy of the debt. If the court sides with the company, it will legally recognize the debt’s existence along with the customer’s legal responsibility to pay. That is the primary reason for taking bad debts to court. Companies want that legal recognition.

Recognition Opens Additional Doors

Finding in favor of the company would result in a legal judgment being entered against the customer. That judgment includes recognition of the debt. Most importantly, legal recognition opens additional doors that would otherwise remain closed. For example, a judgment in its favor gives the company access to certain collection tools including:

  • Garnishment – The company can obtain a writ of garnishment against the customer’s wages and/or bank account, at least in states where garnishment is a legal option. Garnishment allows the company to seize a certain amount of money and apply it toward the debt.
  • Liens – A judgment opens the door to filing liens against the customer’s personal property. The company might place a lien on the customer’s house, meaning the customer cannot sell the house without satisfying the debt.
  • Seizure – Judgments open the door to seizing and selling some of the customer’s assets in order to pay the debt. Even after putting a lien on the customer’s house for example, the company could also seize his classic car and sell it at auction.

None of these things is possible without obtaining a judgment first. Without a judgment, the company’s collection efforts are fairly limited.

Sending Bad Debts to Collection

It is not unusual for companies to send their bad debts to collection rather than going to court. Judgment Collectors, a Salt Lake City collection agency that specializes in judgments, says that sending debts to collection can help in the sense that a company is hiring and agency whose only job is to contact debtors and collect. But without a judgment, a collection agency’s efforts are still limited by law.

Collection agencies like JudgmentCollectors.com can do a whole lot more with a judgment in hand. They have access to the three options listed above as well as a long list of tools for tracking down debtors, finding their assets, and encouraging them to pay what they owe. Taking bad debts to court is not always the wisest course of action. But when it is the best move, it can help a lot. Winning a civil case results in a judgment. It establishes liability and opens the door to collection tools that cannot be accessed without the legal recognition a judgment provides.