Why Many Judgments Do Not Get Collected

We win 99.9% of our collection litigation cases.  But winning is the first step – now we need to collect.  You only pay the contingency fee on the actual amounts collected.

We typically only recommend litigation when we think there is at least 50% chance of actually collecting.

The most common reasons we don’t collect are:

  • The debtor company goes out of business
    • Applies to corporations, LLCs, etc.
    • Only the entity is responsible for its debts
    • If there are no assets, then there nothing to collect
    • We refer to this as a defunct company
  • The debtor company is operating but has no attachable assets or revenue
    • Minimal cash in bank
    • Minimal tangible assets that could be seized and sold
    • Existing tax liens that have priority or client’s judgment
    • Debtor’s bank accounts frozen by tax liens
    • Bank has UCC against the bank account as collateral for a loan
    • Minimal revenue (declining sales)
    • Inability to attach revenue sources
  • The debtor company files bankruptcy
    • Since filing bankruptcy costs money, most companies simply go out of business
    • If the company files bankruptcy, the bankruptcy court will determine who gets paid and how much based on all assets and liabilities. If there are no assets, then no creditor gets anything
    • Over 90% of bankruptcies result in our client’s getting nothing
    • It rarely makes good business sense to invest in hourly attorney fees to fight a bankruptcy petition or payment terms to creditors as determined by the court

During the collection process, we try to learn as much about the business as we can so that we can evaluate the likelihood of any of these issues arising that would prevent us from collecting.  We take this into account when deciding if we should recommend litigation.

The business owner is personally liable only:

  • If the owner took money out of a closing business instead of paying creditors, such as:
    • Piercing the corporate veil if debtor paid personal expenses from the business
    • Fraudulent conveyance if debtor took assets into another business such as an Alter Ego company or for personal use
    • If the business was a sole proprietorship
    • If the owner signed a valid personal guaranty

Even if the owner is personally liable, if the business failed and was their primary source of income, in 99% of these situations the owner does not have personal assets or income that could be seized to pay the judgment. Owners frequently file personal bankruptcy as they have extensive personal debt from using credit cards and home equity lines to finance the failing business.