Credit Policy for businesses and how to extend credit and manage credit risk

Going to court is only the first step in collecting the money owed to you. It is up to the judgment creditor’s attorney to actually enforce the judgment. There are a number of methods available that you can use to collect your judgment.

Voluntary Payment: Even after you have obtained the judgment, you can still make payment arrangements with the debtor.  With the ability to place the judgment on a debtor’s credit rating, some judgment debtors will voluntarily pay to clear the judgment from their credit rating.

Abstract of Judgment: This document is issued by the court clerk for a fee of $15.00. Also referred to as a judgment lien on real property, it creates a lien and clouds title to any real property owned by the debtor within the county in which it is recorded, including houses, condominiums, vacant land and even timeshares. The judgment debtor cannot sell or refinance the property without negotiating with the creditor or paying off the lien.

Judgment Lien on Personal Property: This is particularly useful when the debtor owns a business. When filed with the Secretary of State, this document creates a lien on accounts receivable, equipment, farm products, inventory and negotiable documents of title. It can make it difficult for the debtor to obtain credit after this document has been filed and served. The filing fee is $20.00.

 Writ of Execution: This document is issued by the court clerk for a fee of $15.00. It tells the Marshal or Sheriff how much to collect on the judgment. You can obtain a Writ of Execution, which is required for most judgment enforcement procedures such a wage garnishment or bank account seizures.

Bank Account Levy: Upon delivery of the Writ of Execution, written instructions and a fee of $30.00, the Sheriff will issue a Notice of Levy which freezes the bank accounts of the judgment debtor. However, the Marshal or Sheriff must go to the branch where the account is held in order to properly levy on the account.  Information provided by the client such as a photocopy of a check from a debtor can often lead to collection of the judgment using a bank levy.  In recent case, our office obtained bank account information from a private investigator cost as little as $200 and our client was able to collect more than $14,000 of a $17,000 debt.

Earnings Withhold Order: Also called a wage garnishment, the Sheriff will notify the employer to withhold money from the debtor's pay check. The Sheriff's fee for this service is only $25.00 and the employer can withhold up to 25% of the debtor's net pay. In one case, our office started a wage garnishment on behalf of a client. The Sheriff served the Earnings Withholding Order on a Tuesday. The judgment debtor immediately delivered a cashier's check to the Sheriff on the following Monday to pay off the judgment.

Rent Garnishment: If we obtain information that someone owes the money to the judgment debtor, we can arrange to collect that debt directly from the third party. A common example is a rent garnishment. If the debtor owns a rental property, then the creditor can send the Sheriff to collect the rent directly from the tenant as a payment toward the judgment.

Till Tap/Keeper Levy: If the debtor owns a business, the Sheriff can take money directly from the cash register, which is commonly called a till tap. For larger judgments, the Sheriff can leave a "keeper" in charge of the business for up to 8 hours. The "keeper" will collect all the cash and checks that come into the cash register for that day and can also prevent credit card transactions. This can be particularly useful in collecting judgments against businesses such as a retail store or a restaurant.

Vehicle Levy: In extreme cases, the creditor can even have the Sheriff seize the judgment debtor's car and have it sold at auction. This can be very expensive and is better suited for large judgments.

Asset Investigation: Once an asset is identified, the process to collect and sell the asset is fairly simple. The most difficult part is locating the asset. Talk to the person's neighbors. Find out where the debtor works. Every bit of information will help you to be successful in collecting your judgment.

 
About the Author: Carl H. Starrett II has been a licensed attorney since 1994 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.