Collection of Small Claims in the United States

The law concerns itself with the collection of debts but it doesn’t do a good job. In the United States, the only debts that are self-executing are those related to child support and debts owed to the government. By self-executing I mean those debts which a judge can order enforcement without the need for the creditor to engage in further litigation in order to satisfy, that is, pay the judgment. For child support and tax debts, once a judge determines that a debt is due and owing, the debtor can be arrested and incarcerated if he doesn’t pay.

In all other cases, the debtor must engage in further litigation to get paid, unless the debtor graciously agrees to pay. We all know that rarely happens, since if it did happen there wouldn’t have been a need to sue him in the first place. There are those cases where it is not clear who is owed the debt, such as in those fun cars of yesteryear when mortgage notes were bought and sold by entities that may not have formally existed at the time of the sale. But that is beyond the scope of this article.

We are saddled with this system because of the medieval laws of England. Our lawyers defend this system because they wasted a portion of their lives learning it and they want all legal apprentices to suffer as well. Once upon a time, land could be transferred if the owner scooped up a handful¹ of dirt and put the mess into the hand of the buyer—assuming there was “consideration”²—and this was sufficient to convey title. Look at how far we’ve come: today: we have AAA-rated securitized mortgages which can collapse at any time, just like they did in 2009.

Self-executing debt collection was abolished in England in the 19th century and so we have abolished it as well. A person can free himself of most debts–excluding student loans, child support, government fines and tax debts–by filing bankruptcy. Bankruptcy hovers over debt collection efforts because if the debt is unsecured it can be erased in bankruptcy. A debtor will often find it preferable to pay the $500 bankruptcy filing fee than to pay you.

Small claims court is the venue ordinary citizens turn to in order to recover money lent or compensation for services rendered but which remain unpaid. The reason why you see unpaid contractors taking sledge hammers to buildings when they have not been paid is testament to how well the system works.

While small claims courts are designed to use simple abbreviated procedures, here’s the general pattern of civil litigation followed in all 50 States. Some of these may be dispensed with in small claims court:

Elements of Civil Procedure

These are the general elements of civil litigation in the American legal system. Small claims procedure sits on top of this general pattern:

-Complaint (to commence the case)

-Service (to deliver the complaint)

-Motion practice (to address issues with the complaint)

-Answer (to reply to the Complaint

-Discovery (document production, interrogatories, depositions)

-Motion practice (to narrow issues)

-Trial (to decide rights)

-Judgment (the record of the decision)

-Enforcement of judgment (collection)

The Complaint

Small claims are supposed to be easy, but here’s what’s required:

• Drafting a complaint, often on special small claims forms. A complaint:

  ° identifies the debtor, and so contains his name address, serial number…

Usually the creditor lacks this information, so he has to pay someone to get it.

The Complaint:

-briefly describes the circumstances, e.g. “I lent him money, he hasn’t paid me back.”

The Summons

The Summons is a document sealed and filed by the Clerk of Court, requiring the summoned debtor defendant to answer within a set time limit. Of course, the debtor will do no such thing.

Statute of Limitations

Beware the Statute of Limitations, or prescriptive period: old claims expire. You usually have three to five years to file suit to recover on a contract, but there are local rules which govern and if you have simply ignored the debt for 4.5 years because you couldn’t be bothered, the debtor can claim a reduction if he was prejudiced by your lack of attention, such as where a key witness dies.

The Complaint must atate the remedy sought, e.g. “pay me.”

Service of Process

The complaint then must be served on the debtor. “Service” simply means “delivery.” Why do lawyers say “service” when they mean “delivery?” This is because the language of the law has its own vocabulary, harkening back to 1066 and before that, Ancient Rome.

Delivery is by the local sheriff or a private process server. The local sheriff has better things to do. Both cost money. Even if certified mail is a small claims option, ignore it. The debtor will claim he never received it, USPS “return receipt requested” or not. If he signed the return receipt he will claim that the signature isn’t his. If he concedes the signature, he will state that he never opened the envelope.

So it is best to use a private process server who, if necessary, can come into court and testify that he place the Summons and Complaint into the hands of the debtor defendant.

This is a historical artifact and substitutes for physical arrest, which at one time was the only way to bring a defendant into court. We are more civilized now.

Delivering the Summons and Complaint to the

debtor notifies him of the existence of the claim³

It is not necessarily easy to deliver the documents. The rules provide⁴ that the documents can be left with a resident over the age of 14 at the debtor defendant’s residence⁵ If the debtor defendant is a business, just because there’s a store where the documents are left is insufficient. Service must take place at the registered address of the debtor. Of course, the plaintiff (i.e., creditor) has to research this information or pay someone to do the research.

If service is successfully made, the process server files a document showing this fact, stating the date, time and method of delivery. This is called a “Return of Service.”

If the creditor tried to save money by letting the sheriff try to make service and the sheriff failed, this is when you hire a private process server. The plaintiff could have done so in the first place.

An honest business defendant (there are still a few of these) might be interested in waiving service because historical artifacts aren’t cheap and if this isn’t their first rodeo, they know they’ll eventually get served anyway and this is for them a way to cut costs. They may even take this opportunity to open negotiations with an eye towards settlement negotiations to avoid further and costly legal proceedings.

Civil Procedure

Small claims court will try to minimize or simplify these rules, but small claims rules can be thought of as a variation on the standard State Rules of Civil Procedure.

The debtor is given a chance to respond, though sometimes that response is given orally at court.

The court will set the case for trial. In small claims, trial settings are automatic for those cases that are served.

If the docket (the clerk’s record) does not show a return of service, the case will not be called and instead will be rescheduled.

After successful service, the court clerk or the judge’s clerk will set the case for trial. This is a feature of small claims—trial is quick once the initial requirements are complied with. By “quick,” I mean scheduled immediately. Small claims court may only convene once every quarter. Remember that there are 2000 or so American counties, each with different rules and practices.

In a perfect world, both parties stand before the judge, tell their respective stories and the judge decides.

We’re not in a perfect world.

Here are a few “gotchas”:

Companies have to be represented by counsel. Your one-man Subchapter S LLC may be your alter-ego, but if it is the nominal plaintiff, you cannot represent it in small claims court unless you are admitted to practice law.

There are always scheduling issues.

Your opponent will raise pre-trial arguments, if permitted, such as:

-the amount demanded exceeds the jurisdictional limits of the court

-service is improper

-failure to file a necessary non-resident bond or comply with a local rule that’s buried somewhere in unfamiliar regulations

-hundreds of other arguments

Trial

You must arrange and pay for the services of a court reporter. In most courts, this expense is on you in small claims. Transcripts aren’t free, either.

There is no jury.⁶

The judge judge gives each side a chance to speak and prove their case. The judge will usually issue a decision on the spot. This decision is put in writing.

If you lose, that’s the end of it.⁷

if you win, you are now the proud owner of a piece of paper called a judgment. It is not self-executing.

Post-Judgment Procedure

It’s up to you to collect, that is, satisfy the judgment you were awarded in small claims court. To accomplish this, you can try to seize assets belonging to the debtor.

Garnish Bank Accounts

You can try to seize, in legal language, “garnish” bank accounts belonging to the debtor to satisfy the judgment. Unfortunately, few plaintiff creditors know the bank the debtor uses or the account number.

If you don’t know which bank or account number, you will have to pay to get this information. There are three ways to get this information. The “shotgun” method involves garnishing every bank in town. While there are fewer banks today than there once were and most will respond saying the debtor defendant is not their customer, this can nonetheless be expensive.

You can hire a private investigator to obtain the information. Banks have databases, your debtor may be on one.

You may examine the debtor “in aid of execution” on the judgment but now you are deep in the weeds of the law. Expect that these efforts will be ignored and will require further proceedings. To be effective, you will need to hire a lawyer.

The small claims court has powers to enforce its orders, i.e., force someone to attend a deposition or provide documents, depending on the State usually the debtor defendant will ignore them.

Judgment Publication

Record the judgment. The procedures vary from State to State. There will be costs.

Place the judgment on his credit report

The credit bureaus pay people to visit county courthouses and copy judgments. There are 2000 or so counties in the US. Eventually, they will get to yours.

Once a judgment is on a debtor’s credit report, he is automatically a sub-prime credit risk and in most cases will have no access to credit at all. A wise debtor knows this and at this point may reach out to settle.

Few debtors are wise. Anyone who fights service of process in the hopes you will go away is proof. Anyone who appears in small claims court without a lawyer is proof of a lack of prudence.

If the debtor is a prominent company doing general, good business, the debt collection experience will be remarkably different. You may well be contacted by the company’s attorneys in an effort to resolve the matter without the involvement of the courts. Pay heed to these efforts: they mean the company is serious and wants to settle. Settlement is via a check to you in exchange for a release which they will draw up.

If everyone follows the rules, the system can work relatively well. Unfortunately, people don’t follow the rules.

Assets in Another State

The judgment is effective state-wide only.

Under the US Constitution, judgments issued in one State are given “full faith and credit” in all other States.

This provision is not self-executing either. If you appear with a Virginia judgment in New Jersey you will be shown the door.

To satisfy that judgment in another State, you have to file a new legal proceeding to “domesticate” the foreign judgment. By ‘foreign’ here they mean, “the issuing US State”: foreign countries are not involved.

Domesticating a foreign judgment is not easy. There is no small claims domestication of foreign judgments court.

You must bring a civil case in the court of first instance to domesticate a judgment issued in another American State. That court goes by different names in different States and operates under the formal rules of civil procedure.

Alternative Debt Collection

Payment Plan

Offer a payment plan. In many cases, a debtor simply has no money, or doesn’t have a lump sum necessary to pay the debt.

This is not optimal, but it’s better than nothing.

A small business may be very interested in this option as cash flow issues are paramount. They may recognize the debt, but lack a lump sum to satisfy it.

Financing

Offer to help the creditor find financing to pay the debt. There are private sources around. Consider loan sharks. They know how to collect and it’s then no longer your problem.

Business License

If the debtor does business under a personal or business license, threaten to or advise the regulator. Failure to pay debts is often a warning sign of greater problems the regulator may wish to investigate.

Look for standards and practices rules affecting the debtor. Not paying debts is “conduct unbecoming” which may affect other contracts. An employee of a television station may be subject to such rules.

Partner

In a real sense, the debtor is now your partner. Could he provide something of value in exchange for repayment or partial cancellation?

Credit Report

Put the (pre-judgment) debt on the debtor’s credit report. I wish I knew how to do this. The credit reporting burueu will usually pick up the judgment.

1099

If the debt is for money lent, issue a 1099. Th debtor will not declare or have declared the sum to the IRS. Then you file for an IRS reward because the debtor has filed an inaccurate return.

The threat to involve the IRS focuses the mind of a debtor. I don’t know if you can issue a 1099 for services only, but I suspect not. Check with a tax professional or the IRS.

Unwanted Visitors

Send two unemployed ex-college football players to the debtor’s place of business. Instruct them to identify the debt and ask for payment but to not make any threats.

Take $200 and round up ten crackheads or fentanyl users. Drive them to the debtor’s home around 3 pm, tell them they have to stay until 6 pm, so his kids can meet and greet the new strangers.

Collection Agency

Give the debt to a debt collection agency.

Shame

Shame the debtor. Unfortunately, when it come to money, Americans have no shame and don’t care if a creditor tries to shame them.

This often works with ethnic groups. See below.

Violence

According to the linguist, activist and Epstein island visitor Noam Chomsky, violence works. But are you willing to go to jail to collect a debt? And the use of violence will often result in only an unpaid debt.

Tony Soprano parked a boat in front of a beach house and played loud music day and night to encourage someone who owed him money to pay.

Family

When it comes to collection, nothing and no one are off-limits. Specifically, families are not off-limits. But be careful not to transgress other laws, such as those criminalizing stalking. Hiring people to approach the debtor’s spouse or parents should be considered “in aid of execution” and might produce the funds that are owed.

Unwanted Inquiries

Write letters in the debtor’s name to disreputable organizations asking “for more information.” These days it’s hard to find organizations which everyone agrees are disreputable. Start with the Klan, NAMBLA and the Aryan Brotherhood.

The Witches of Abuja

If the debtor defendant is a member of an ethnic group with strict cultural practices, do not be afraid to use these to your advantage.

Generally speaking, Nigerians are afraid of the witches of Abuja. A curse placed by these witches is no laughing matter; even deaths have been reported among those cursed. Even the most hardened non-believing Nigerian cannot completely discount the efficacy of such a curse.

Cubans in Miami have a similar relationship to the Santeria gods of palo mayombé. Sure, you can ignore them, but you never know for sure.

Christians once feared the displeasure of their saints, but no longer. For Christian scammers, a dollar in the hand is more valuable than the threat of damnation after death.

Invoking spiritual tools such as these, turning to creative debt collection options may well bring their own problems.

There are those who are much more creative than I am when it comes to alternative debt collection plans. Abuja witches will not bother evangelical Christians. At least, most of the time.

In Summary

There is no reason why judgments could not be made self-executing and freeing just creditors from all this execution nonsense save for the thousand or so years of the common law of England, which was written in French even at the time Shakespeare was writing his plays.

The world of lawyers will eat up small debts.

In that world there is no easy way to get paid.

---

1. The law texts always refer to a “clod” of dirt. Query whether a clump was sufficient. ↩︎

2. Consideration is that which supports the bargained-for exchange, usually, but not always, money. This is why you will often see contracts which state, “For $10 and other valuable consideration” lest a crafty lawyer show that there was no consideration and hence no contract. In Anglo-American contracts, consideration is a necessity. As a sidenote to this footnote, consideration is not an element of Islamic, that is, shari’a contracts. If you agree to do something in an Islamic contract, you must do it, full stop. ↩︎

3. As if he didn’t know. You’ve only been trying to get paid for months. ↩︎

4. Again, generally. Each American jurisdiction is different. Don’t forget that the country fought a civil war over uniformity. ↩︎

5. Lawyers will argue that it was the neighbor’s kid who was just visiting and he’s not 14 yet. ↩︎

6. If you want a jury, you want to be in the court of first instance and not small claims court. ↩︎

7. There may be a technical right to appeal, but a transcript is a requirement and appellate costs will dwarf the amount of the small claim. ↩︎