Is Small Claims Court a good way to collect money owed to me?
Small Claims Courts were established as a way to allow small business owners and individuals a way to take cases to court themselves, and avoid the expense of hiring an attorney. The process is meant to be simplified, and claims are limited to a certain dollar threshold, which varies by state.
Debt collection using the court system can be effective in certain cases. Other times, it can be a waste of your time and money.
Here are some considerations:
The court does not collect the money for you.
If you take a case to small claims court and win your case, you will be awarded a judgment. A judgment is a court order confirming the amount owed to you. It usually lists the amount awarded and how it is to be paid. The court only gives you the judgment, they do not collect the money – that is on you.
Once you have a judgment, you have many options available to you, such as placing a lien on a property or garnishing wages or bank account. These processes can be complex, and may cost you even more money.
Have a plan on how you are going to get paid. A large percentage of small claims cases go unpaid, because creditors just do not have the time to pursue them unless the judgment debtor pays voluntarily.
Make sure you understand the process and follow it carefully.
Even though the Small Claims process is simplified, each state has procedures that you must follow to be successful. For example, in order to have your case considered, your debtor must receive notice of the lawsuit. This notice, called service of suit, is essential. Your case will be dismissed if you do have it served properly. Some states require you to hire a process server, while others allow you to serve the suit by certified mail. Before you start, check online or call the court and ask a clerk for instructions. Most states have some sort of guide that will be a big help.
Make sure Small Claims actions make sense, economically
Once you have basic information from the court, take a look at the costs involved. The costs could include fees for filing the suit, the cost of hiring a process server, and then the costs involved after you receive a judgment to file liens, etc. Make sure the math makes sense.
Consider alternatives to do-it-yourself Small Claims
Would it better to forward your file to a collection agency to see if they can get your wayward customer on a payment plan? If the only reason you want to use the Small Claims Court is to save on a collection agency fee, consider the investment of your time. Do you have the time to spend a day in court?
Also if you have customers sign a contract that allows you to recover any costs of collection, your collection agency can recover them, as long as your state allows it.
So yes, Small Claims Court can be an effective tool in collecting money owed to you. It is not for every case. Pick your battles. Do your homework, and if you use the courts correctly, you are bound to succeed.