How to Collect on a Debt in Small Claims Court
You’ve tried everything from reasoning with your customer to sending a demand letter, clearly stating the debt they owe and the payment schedule. Yet despite your most noble attempts at legally collecting on a past-due account, your efforts have fallen short and the customer still hasn’t paid. Small businesses often survive on a very tight budget and failing to receive promised revenue on an account can have a negative impact on your future. If you are thinking of collecting on a business debt in small claims court, there are several procedures you will want to follow both leading up to your court date and collecting on the judgment after you win.
Small Claims Filing Procedures
First, let’s understand what small claims court is and isn’t. Small claims court involves civil disputes surrounding smaller amounts of money. They are places to receive some legal recourse on your outstanding debt, but only up to a certain monetary limit. They are not places where you will expect to receive hundreds of thousands of dollars in unpaid account fees and costs from your delinquent customer. Instead, each court has its own individual limit by state. For instance, in California you may file in a claim in their small claims court system assuming it doesn’t go over $10,000 for individuals and sole proprietors and $5,000 for any corporation or other entity.
If your claim involves anything over that amount, you will have to file in the superior court. Remember, you will want to file the paperwork initiating the small claims action only after you’ve exhausted other collection attempts such as sending the demand letter.
I Run a Business. Do I Also Have to Appear in Court?
Now that you’ve filed the lawsuit, the next question is whether or not you will personally appear in court. We know how busy you are with running your business, revising your goals and strategy for success, and ensuring employee development. Trying to cram a day in court into your schedule can cost you money. Each state is different and many will allow different representatives to appear in court on behalf of the plaintiff. Some states allow attorneys to appear, others let bill collectors represent you, while still others don’t allow either and may require you or one of your employees to appear. Always check with a lawyer first or contact the small claims court to learn more.
Collecting on a Small Claims Judgment
Let’s assume you’ve followed all the correct procedures, including filing the right paperwork, properly serving the debtor with notice of your small claims action, you won. Congratulations, but now you must deal with collecting from the person or entity that failed to pay you in the first place. If you are lucky, the person will come to court ready to pay immediately. If not, you may need a writ of execution. This is a court order directing local law enforcement to help you collect on your judgment by asking to garnish the debtor’s wages or even attach the debtor’s bank account. Learn more about these procedures from a local attorney.
Collecting on a Debt in Small Claims Court: Related Resources
- Collection of Accounts Checklist
- Collecting Debts Owed by a Bankrupt Customer
- Understanding a Mechanics Lien
Find Out How to Collect in Small Claims Court
Nothing can be more frustrating that having to go to court to collect on delinquent account. It may take time and effort away from what matters most: running your small business. But the good news is that you may not have to appear at all, depending on the rules in your state. Consider speaking with a collections lawyer in your area to learn more about local small claims filing procedures and more.