When Should a Judgment Creditor Bring in a Collection Agency?
Selective focus of senior man holding pen near wife with debt collection lettering on papers
Bringing in a collection agency is one way to deal with a monetary judgment without having to manage things yourself. But is bringing in a collection agency the best move? And if so, how long shall a creditor wait before doing so?
Judgment collection is not as straightforward as it might seem. It involves lots of moving parts. Not only that, but circumstances can also change very quickly. So rather than trying to come up with a black-and-white answer to the question of when a collection agency should be brought in, it’s better to look at the things a creditor would have to consider before making the decision.
1. The Size of the Award
One of the first things I would consider is the size of the award itself. Collection agencies do not work for free. So if bringing in an agency would pretty much wipe out what I hoped to collect, doing so would not make sense.
On this particular point, it pays to know how collection agencies make their money. According to Judgment Collectors out of Salt Lake City, UT, some agencies purchase judgments as assets. They tend to pay pennies on the dollar. Others, like Judgment Collectors, work on consignment. They take a portion of whatever they collect. If they collect nothing, they get paid nothing.
2. Time Limits
Next up are the time limits associated with judgment enforcement. There are two limits to consider: the statute of limitations and dormancy. Most states have statutes of limitation ranging from 7-10 years. At 10 years, a creditor could wait a bit to see if things could be worked out without the help of a collection agency.
The dormancy issue is another matter. Some states allow judgments to go dormant if a certain amount of time passes without any collection efforts made by the creditor. Dormancy periods tend to be much shorter than statutes of limitation, thereby giving creditors less time to wait before taking action.
3. Financial Need
In a case in which a judgment creditor needed the money quickly, there might be little time to delay. Think of a small business whose cash position remains in jeopardy for as long as the judgment remains unpaid. It could be in the business owners’ best interests to bring in a collection agency as soon as the case is decided.
Collection agencies have access to tools that could expedite payment. There is no guarantee of success, but a collection agency is more likely to succeed than a creditor trying to do things on his own.
4. Debtor Finances
The other end of the spectrum involves cases in which debtors truly do not have the financial resources to pay. Their income is limited, and they have no valuable assets worth pursuing. In such a case, bringing in a collection agency wouldn’t do much good. In fact, most collection agencies would not even take such cases.
Instead, it is better to sit tight and watch. Perhaps the debtor’s financial position improves down the road. Maybe he manages to get his finances in order or get a better job offering enough disposable income to make wage garnishment worthwhile. He might even get careless and start putting money into collectibles. You never know.
A general rule of thumb is to bring in a collection agency at the earliest possible moment. But judgment creditors should also take a good look at the overall picture before deciding. There are times when hiring a collection agency is the best way to pursue payment. Other times, there are better ways to get paid.
