If the judgment is against an individual then the creditor may record it in the county records, ruin the defendant’s credit, try to garnish wages, collect the defendant’s assets, continue to check periodically to see if defendant has come into some money or acquired new assets… This is an ongoing and costly process, and much of the time yields nothing. For one, the defendant can simply leave the country and the judgment is worthless, or the defendant can hide his assets by placing them under a 3rd party’s control or offshore or use shell companies, and to prove a fraudulent conveyance an entirely new lawsuit is required and regardless of the result, collecting anything is still uncertain. Of course, if the defendant, an individual or a business, has concrete assets to seize to satisfy the entire judgment then the creditor is in luck; this is a relatively rare occurence.
A judgment against a business is the worst type of judgment for a creditor to hold because it is generally very difficult to collect, unless the business is in operation with hard assets that may be seized, which most small businesses don’t have or own free and clear. Many businesses will close up shop, open under a new name in a new location and the judgment becomes worthless. A virtual business with no assets is highly unlikely to ever pay any judgment; they are too easy to relocate. Suing a business is generally a bad idea unless a principal can be sued personally and/or the suit involves “veil piercing”: an order by a court to disregard the limited liability protections of a company and hold the principals behind it liable personally, and this is not an easy result to obtain.
As a result of examining the litigation process we can draw two conclusions: one is that in general this is the bread and butter for attorneys on both sides and the longer litigation drags on the more they profit. This, of course, is a clear conflict of interest. Attorneys simply have no incentive to wrap up a case as soon as possible, unless they have so many clients that they truly want to decrease their caseload. The other is that winning a case and collecting on a judgment are two separate matters, the second of which is more difficult to do than prosecuting a lawsuit to its conclusion. Most judgments are never fully collected. To be forewarned is to be forearmed: we will discuss methods to avoid litigation entirely or greatly simplify and speed up the process in future posts. Hint: they involve mediation or arbitration.
