How to collect on a judgment
by Sophie Petrillo (Published in the February 2008 issue of Mississauga Business Times)
Many businesses find themselves in a position where they are owed money by one or more of their customers. This is frequently the case in the construction industry, but the construction industry by no means holds a monopoly on bad debts.
Lawyers are retained, lawsuits are started, and judgments are obtained. Then what? Does the court magically open its coffers and write you a cheque for what you are owed? Unfortunately, the answer to that question is a resounding “no.”
During the litigation process, it is quite common for a party to obtain a piece of paper from the Court which legally declares that a particular person or company owes them a certain amount of money. This is known as a “Judgment.”
However, obtaining a Judgment is often the first step in a long and frustrating journey of actually collecting the amount of the money you are owed.
Once you actually have a Judgment, the first decision to be made is whether to spend the time, money and resources in pursuing collection efforts.
Some of the initial questions you should ask yourself in making this decision are:
- Is the debtor a company that has stopped operating?
- Has the debtor already gone bankrupt?
- Is there anyone else who is also owed money?
- If there are others who are also owed money, do they also have Judgments?
If the answer is “yes” to any of these questions, it may not be worth proceeding to enforce your Judgment as the costs may far exceed any potential recovery.
Three legal remedies to help get your money
If the decision is made to take the next steps to collect on your Judgment, there are a number of legal avenues you can pursue.
The three most useful and commonly used enforcement remedies are: Writs of Seizure and Sale, Garnishments and Examinations in Aid of Execution, also called “JD Exams.”
These three basic methods of enforcement (writs, garnishments and JD exams) are the same regardless of whether your Judgment is against a corporation or an individual; consult with your lawyer about your particular situation.
- A Writ of Seizure and Sale is filed with the sheriff’s office where a debtor resides or carries on business, immediately after the Judgment has been obtained. Filing such a writ has the effect of binding any lands or assets held in the name of the judgment debtor in the jurisdiction where the writ is filed, a creditor can stake steps to force the sale of the real property by the sheriff’s office and collect money from the proceeds of the sale.
- Garnishments are the legal method used by creditors to intercept and seize any monies owing by third parties to the debtor. A creditor, upon obtaining information that a debtor is owed a monetary amount by a third party, would serve that third party with a “Notice of Garnishment.” Once served, the third party is legally obligated to remit those funds to the sheriff’s office for ultimate distribution to the execution creditors. The most common garnishments are that of a debtor’s wages (if an individual) or a bank account. However, other monetary assets which can be caught by a garnishment include accounts receivable and rent monies.
- An Examination in Aid of Execution allows a Judgment creditor to legally compel a debtor to provide information about his or her assets. You may examine the debtor on all matters relating to his or her financial affairs and during the course of the examination, you are entitled to review all relevant documents, such as the debtor’s bank records, financial statements, payroll information, etc. Information obtained during the course of such an examination may give you the jump off point to try other enforcement remedies such as garnishments or the seizure and sale of real property.
Regardless of whether your business is a small, family owned hardware store or a large general contracting outfit, and you are owed a few thousand dollars or hundreds of thousands of dollars, the key to enforcing you Judgment is to act quickly, methodically and to maximize every enforcement measure at your disposal.