GPSolo Magazine - April/May 2005

Turning Judgments into Money:
Collecting Debts for Clients

The effective collection of a judgment starts at the time credit is extended. Indeed, the most effective collection program starts at the initial stages of the relationship between the debtor and creditor. Therefore, it is important to stress to clients from whom you receive collection accounts the importance of establishing a written credit policy administered by a person who is knowledgeable in both credit and collections. Under such a credit policy, credit is extended only if a customer satisfies the required guidelines and credit limits that are put in place.

Credit Application

Pivotal to a credit policy is the use of a thorough credit application. The information your client obtains will not only be of assistance in determining whether to extend credit in the first instance, but it also may provide leads for collecting delinquent obligations. The application should contain the following information:

Complete name and address of the customer (a post office box address is not acceptable). The exact location of the customer may be important when it comes time to collect. Your client should take care when obtaining the name of a customer—some names are similar, and your client may not be dealing with the customer she thought she was. Your client should verify the accuracy of the spelling of each of the parties to whom credit is being extended. When dealing with individuals, a quick check of a driver’s license, or obtaining a copy of a driver’s license, may help verify the party with whom the client is dealing.

A telephone number, fax number, and e-mail address. Communication is key to collection, and the more ways to communicate, the better.

Legal status of business. At a minimum, the creditor should be able to identify whether or not the customer is a sole proprietor or a corporation. If the size of the transaction warrants it, your client should verify the legal status of the borrower and perhaps obtain a guaranty from an individual shareholder or officer. Corporate resolutions or powers of attorney also may need to be obtained. Finally, if any individual is signing on behalf of a company as a partner, shareholder, or officer, his or her title should be clearly indicated after the individual’s name.

Creditor references. In any credit application there should be references of creditors listed. Moreover, your client should check these credit references prior to the extension of the credit. Valuable information may be obtained from the creditor references in regard to how well the customer actually pays. When dealing with consumers, the easiest way to obtain this information is by pulling a credit bureau report. Of course, specific permission must be obtained prior to pulling the credit bureau report of any customer.

Sales volume. This is useful in ascertaining a business’s ability to pay. If the sales volume is low, the customer may never be able to pay.

Bank reference and name of a banker. Again, particularly when dealing with businesses, it is important to obtain information about availability of credit to the customer from other sources, as well as the general financial health of the customer prior to an extension of credit. This information may be helpful when collecting a judgment because it provides the name of a bank with which the customer has dealt, and after obtaining a judgment a bank attachment may be filed.

Social Security number or tax I.D. number. Although many individuals are reluctant to provide a Social Security number, that information is very helpful in establishing the identity of the person with whom the creditor is dealing. When collecting a judgment, a Social Security number is the key to finding asset information.


Once the application is taken, your client should undertake an investigation to determine the credit worthiness of the customer. Each item on the credit application should be reviewed. If the potential customer is an individual, the customer’s personal credit history can be obtained from a credit-reporting agency. In utilizing these reports, close attention should be paid to the section that includes publicinformation such as lawsuits and filed Uniform Commercial Code (UCC) financial statements. The number of recent inquiries by other creditors may also provide the creditor with valuable information on the customer. There are services that provide this information for businesses as well.

When reviewing the credit references provided by the customer, clients should bear in mind that customers typically provide only those references that they believe will provide a positive report. A creditor should be extremely cautious if any of these references provide anything less than a strong recommendation.

Collection Program

The next step toward a successful recovery is an effective collection program. Your clients should establish a written collection program that includes all of the steps from the initial extension of credit and covers items such as the identification of the proper party, utilization of the credit application, determination of credit worthiness, requirement for guarantors or collateral, and the proper execution of the required documentation.

The program should provide for the regular monitoring of accounts in order to identify delinquencies in a timely manner. Further, the program should set forth a detailed, step-by-step procedure for collection, including the procedure for identifying delinquencies and utilizing collection tools from memos, letters, telephone calls, personal visits, and the referral to collection professionals. A particular person should be responsible for implementing and maintaining the program. Extensive notes should be taken with regard to all collection activity, and the activity should be subject to a tracking system with follow-up activity monitored. Receivables should be monitored regularly in order to determine delinquencies. The sooner a delinquent account is addressed, the better the likelihood of recovery.

Professional Assistance

Although the creditor should initially attempt to collect a delinquent receivable on its own, in many cases professional assistance will be necessary. There is a proper time for bringing in the collection professional, because the professional will not be successful if the account is not assigned in a timely manner. In determining when to turn an account over to a professional, consider:

The amount of the outstanding balance. A small balance account may not be worth pursuing. Each creditor will have different criteria, but a cost/benefit analysis should be done to determine if the account is worth pursuing.

The length of the delinquency. Although the tendency of creditors is to wait, the quicker they turn over an account, the more likely they are to collect.

The reason for the delinquency. If the delinquency is the result of a customer in financial trouble, or one who “slow pays,” turning the account over to a professional may be the best course of action. On the other hand, if the non-payment is the result of a customer service issue or a failure to provide goods or services, turning over the account may result in liability against the creditor. These accounts may not be worth pursuing.

Collectibility. Pivotal in collection is the apparent ability to pay. If a business has ceased operation, the account is not likely collectible. If an individual has no job, no bank account, and no real estate, the account may not be collectible.

By the time that the account comes to the lawyer’s office for collection, the customer/debtor should be fully identifiable. In the case of an individual, you should be aware of his or her full and complete name, as well as any aliases. In the case of a business, there should be detailed information concerning the nature of the business, the complete and full name of the entity, and any individuals who contracted or signed on behalf of the entity.

As indicated, the key is to start with as much information as possible. The customer application should be in your file, as well as the most current available contact information. Remember that additional leads on the debtor’s current whereabouts may actually be on the application, including maiden names, old girlfriends or boyfriends, in-laws, ex-spouses, parents, or best friends, all of whom may have information that could help you locate a missing debtor. They may also have information about assets of the customer/debtor.

Other key information can be found in clients’ documents if you scour them thoroughly. Account documents may very well contain various addresses where the customer/debtor did business or had some connection. Often, bank account information is contained in the loan/credit documents. Certain business assets may be identified also, even if no security interest was taken in such assets.

Filing Suit

Prior to filing suit, an analysis must be made as to whether or not it is worth the client’s money to even pursue a lawsuit. There are many customers/debtors who are in fact judgment-proof or uncollectible. Many creditors will not initiate litigation to collect an account unless there is a verifiable asset sufficient to pay a judgment. In particular, many creditors look for real property ownership. Much of this information is available on the Internet through a county recorder or auditor’s office. An individual who is receiving only exempt income (such as Social Security) and owns no attachable assets is virtually uncollectable.

There also may be a legal impediment in pursuing collection activity. A creditor may not pursue a customer/debtor who has filed bankruptcy. Although many financial institutions regularly scrub their accounts for the filing of a bankruptcy, many small businesses do not. It is important, therefore, that any lawyer who is collecting accounts for any client check the public records to determine whether or not a customer/debtor has filed bankruptcy. This information is available online. Once a customer/debtor files bankruptcy, a creditor may not take any action to collect a debt without specifically seeking the permission of the bankruptcy court. Efforts by an attorney to collect a debt of a person in bankruptcy may subject the attorney to sanctions under the bankruptcy code and additionally may be in violation of the Fair Debt Collection Practices Act and other laws.

Once it has been determined that the only effective way to collect is to file a lawsuit, the first consideration must be where to file. When suing on consumer debt (debt incurred for a personal, family, or household use), the suit must be filed where the consumer signed the contract or where the consumer resides. This restriction is imposed by the Fair Debt Collection Practices Act. If services were provided pursuant to an oral agreement, suit may be filed only where the consumer resides. In business or commercial transactions, suit may be filed anywhere the court has personal jurisdiction over the defendant. In the case of a written contract, it is possible that the debtor actually agreed to personal jurisdiction in a specified locality, typically where the creditor has its principal place of business. However, the contract should be consulted for any specific forum requirements.

Once a lawsuit is filed, each state has its own requirements as to when default occurs and judgment obtained. Typically, prejudgment discovery after a response is filed by the customer/debtor is limited to determining the customer/debtor’s liability on the debt, but every meeting with the customer/debtor is an opportunity to learn useful information and to encourage a voluntary payment arrangement. The creditor should consider the many aspects of the case during settlement negotiations, including collectability from the customer/debtor, the continued cost of litigation, the validity of any defenses or counterclaims raised, and the benefits of a lump-sum payment versus extended collection efforts.


In some instances, settlement takes the form of a consent judgment entry where the parties agree to a judgment and set up a specific payment schedule for the judgment amount. In exchange for the payments, the creditor may agree to withhold executions on the judgment as long as the customer/debtor pays as agreed. Another option may be to execute dual entries where the creditor agrees to dismiss the action subject to a settlement agreement that allows the dismissal entry to be vacated and the judgment entered for a non-payment default. Some courts frown on the use of dual entries.

In many states, once a judgment is obtained, it acts as a lien against any real property. Some states also require the specific filing of a certificate of lien, although in many others it may be automatic once the judgment is rendered. Obtaining a lien against property, in either event, is worthwhile because it may act as an impediment to transfer; if the customer/debtor is looking to either sell real estate or refinance real estate, the liens must be paid off. Therefore, there is an added incentive to pay the judgment. In some states, you may pursue a foreclosure action that allows for the sale of the real estate to satisfy the judgment.

Non-Voluntary Payment

As stated repeatedly above, it is crucial that your clients know their customers/debtors and what assets they have. But in many instances, that information may be incomplete. Location information can be obtained on the Internet through various search engines. Additionally, information regarding ownership of both real and personal property can be obtained through a public record search. Access to credit bureaus obtained by your client in the initial stages of the credit relationship can be useful in identifying other potential sources of information, such as other creditors. Although the missing information may not be obtained merely by picking up the phone and talking to these other creditors, the use of subpoenas in obtaining information from other creditors can be very successful.

In most states there is a post-judgment discovery mechanism that may be used to determine what assets the debtor has to satisfy any outstanding judgment balance. In some instances, it is merely a paper discovery tool utilizing interrogatories and requests for production; in many instances, however, depositions of the judgment debtor also can be taken. Now the judgment debtor must answer all questions concerning his or her property, income, and other assets. An uncooperative judgment debtor may be required to answer to the judge for his or her behavior. Care should be taken to thoroughly examine any judgment debtor concerning asset information. The deponent should be examined thoroughly over issues such as the existence of bank accounts, insurance policies, household furnishings, collectibles, tools, equipment, vehicles, and any and all potential sources of income, including monies owed to the debtor from other sources.

Depositions may be conducted of third parties. In deciding whom to depose, your choices may be clarified through a thorough examination of the judgment debtor himself or herself. Information concerning transfers of assets to third parties may lead to additional discovery and/or eventual litigation against third parties who have been paid improperly or who are holding assets for and on behalf of the debtor in order to avoid attachment. Fraudulent transfer actions are allowed in most states to undo transfers made to third parties without consideration. Creditors’ bills may be allowed in other instances to enable attachment of personal property not in the hands of the judgment debtor, but to which they are entitled or will soon become entitled.

In many states attachments are allowed of wages, although in other states they are not allowed. A lawyer should consult statutory provisions concerning attachments on personal earnings to determine in what instances they may or may not be available. As well, in many states attachments are allowed on bank accounts or other properties, including household goods. Often, the court allows a specific procedure that provides for attachment of wages, personal property, or other property and at the same time provides to the judgment debtor and/or other creditors an opportunity for a hearing to determine the validity of the attachment.

With or without a judgment, if the client has a security interest in specifically identifiable property, some property may be repossessed upon default. Remember, however, that self-help repossession must cease if its continuance would result in a breach of the peace. A breach of the peace has been broadly construed, and a creditor is well advised to stop at the first sign of trouble.


In every state there are recognized exemptions to the attachment of money either through personal earnings or otherwise. Some examples are worker’s compensation, unemployment compensation, welfare, Social Security benefits, supplemental security income, veteran’s benefits, black lung benefits, spousal and child support, and wrongful death or loss of future earnings benefits. Statutes concerning exemptions should always be consulted prior to attachment.

As indicated above, the filing of a bankruptcy stops collection proceedings. In some instances, the filing of a bankruptcy by a co-debtor may also stay collection against all borrowers on the debt. Any lawyer collecting debts should be aware of the Federal Bankruptcy Statutes and all statutory schemes concerning exemptions from attachment.

Lawyers can be third-party debt collectors under the provisions of the Fair Debt Collection Practices Act. Therefore, the act should be followed strictly by all attorneys. A review of the act prior to instituting collection activity is well advised, but generally speaking the act limits the time period in which calls can be made, the places where consumers may be sued, the manner in which the balance of a debt is calculated, and the specific warnings to be contained in collection letters.

Rosemary Taft-Milby is a partner managing the litigation and defense department in the Cleveland, Ohio, office of Weltman, Weinberg & Reis Co., L.P.A. She can be reached at


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