How to Collect a Small Claims Judgment with a Payment Plan - dummies

How to Collect a Small Claims Judgment with a Payment Plan

By Judge Philip Straniere

If you won a substantial amount of money in small claims court, chances are that the defendant may need a payment plan because they won’t have the financial resources to send it to you in a lump sum. Rather than engaging in the risky business of chasing him down, you may want to enter into a payment plan with the defendant.

In some states, having a payment plan for defendants is part of the court rules. With a payment plan, the defendant pays the money to the court and the court then sends it on to you.

If you agree to a payment plan, make sure to

  • Put the agreement in writing and have both you and the defendant sign it.

  • Agree to a payment plan the defendant can fulfill. It makes no sense to set up a payment schedule the defendant can’t meet. If you do, you’re just asking for problems. You may as well just have the marshal or some other approved entity try to collect.

  • Decide whether the payment plan will include interest to you. In theory, if you had the money in a lump sum, you could put it in the bank and earn interest on it. (However, with the interest rates so low currently, this probably isn’t a big issue. It may be better to skip the interest in exchange for timely payment.)

  • Include a clause that says if a payment is skipped, interest will be assessed back to the date of judgment as well as providing for the addition of collection costs if you have to go to the marshal.

  • Set forth some default notice to the defendant in case he misses a payment. If you don’t get a scheduled payment, send the defendant a notice to cure, which says, basically, “Hey defendant, you missed the payment due January 1. If I don’t have it by January 15, the settlement agreement is null and void, and I’ll take other steps to enforce my judgment.”

  • Provide a clause that says that after all the payments have been made as agreed, you’ll issue a satisfaction of the judgment or notify the court that the judgment has been satisfied . A satisfaction of judgment is a document in which the judgment creditor —meaning you, the winner of the case — acknowledges that the defendant has in fact paid all of the money due to you.

    Most people don’t do this, which results in the defendant having to chase you down years later to get the satisfaction to clear up his credit. Fair is fair. If the defendant pays up, give him the satisfaction of acknowledging it.

    In some states, you’re required to register a satisfaction of judgment. If you don’t, you may become liable for the costs the defendant incurs in chasing you down. Remember the judgment is a legal record and can adversely affect the defendant’s credit, and the failure to issue a satisfaction of judgment when you have an obligation to do so may expose you to a lawsuit for impairment of credit.

In many small claims courts, if you as the plaintiff notify the clerk that the judgment has been satisfied, the court record will be marked to reflect that. In other states you may actually have to file a specific form to accomplish this. Again, check with the clerk as to what is the procedure in your small claims court.

If you, the plaintiff, agree to accept less money than the judgment amount because you’re going to get paid sooner rather than later, include a clause that says if the payments aren’t made by the defendant as agreed, you can enforce the full amount of the judgment, plus interest, costs, disbursements, and attorney’s fees if permitted, less a credit for any money he paid.