Money judgments obtained in civil court are so named because they involve monetary awards. The court awards financial compensation for debt relief, personal injury, and so on. But in many cases, the real value of a money judgment is lower than its face value. There is a litany of reasons why this could be so.
The easiest way to understand the difference between real and face value is to consider a judgment collection agency that buys judgments as assets. Such collection agencies usually pay pennies on the dollar. Their reasoning is simple: they are taking a huge risk on every judgment they purchase. They need to protect themselves and make a profit at the same time. Therefore, they cannot afford to pay full price.
Reasons Behind Reduced Value
Getting pennies on the dollar may not be acceptable to a judgment creditor. Fortunately, there are other judgment collection agencies that work on consignment. Salt Lake City’s Judgment Collectors is one such agency. They don’t buy judgments; they provide a service for which they get paid.
According to Judgment Collectors, here are four common things that reduced the real value of a money judgment:
1. Debtor Bankruptcy
In most states, bankruptcy is a potential way out of a money judgment. Certain judgments cannot be dismissed by bankruptcy – including those involving unpaid taxes and child support – but most can. An existing bankruptcy proceeding or the potential for the debtor to declare bankruptcy automatically puts a judgment in jeopardy, thereby reducing its true value.
2. Limited Income and Assets
The ability to successfully enforce a money judgment always boils down to the debtor’s income and assets. If he has sufficient means to pay, everything is good. But limited income and assets make successful collection harder. The lower the total value of the debtor’s income and assets, the less valuable a judgment against him is.
3. The Existence of Other Judgments
Some judgment debtors are subject to multiple judgments. If this is the case, judgments are generally prioritized based on when they were entered. The first judgment entered takes priority over the second, and so on. This creates a problem for judgment collection agencies.
An existing judgment that sits behind two or three previous judgments suddenly has less value. Why? Because the chances of receiving the full amount go down with each position a judgment loses to its predecessors.
4. Jointly Owned Property
A money judgment can be worth less than its face value if all the debtor’s property is jointly owned by a spouse. Marital property protections make jointly owned property off limits unless the debtor spouse was named in the original lawsuit.
This is such a problem that attorneys often advise their clients to establish joint ownership of all valuable assets during the earliest stages of a civil proceeding. Doing so is one way to protect those assets from collection efforts.
Plenty of Other Reasons
There are plenty of other reasons a collection agency could cite in order to justify paying pennies on the dollar for an outstanding judgment. But the bottom line is risk. The more risk the agency is taking on, the less it is willing to pay to purchase a judgment. That is just the way it works.
Judgment creditors have another option in the consignment-based collection agency. Judgments are still worth less than face value with a consignment agency due to the fact that the agency gets paid based on a percentage of what it collects. Nonetheless, creditors are still likely to get more by working with a consignment-based agency.