4 Reasons a Collection Agency Might Turn Down a Judgment
Collecting an unpaid judgment is something creditors can turn over to collection agencies. Doing so means that the agency manages the heavy lifting while the creditor waits to get paid. But there are times when collection agencies will not take on a judgment. There just isn’t enough in it for them.
Common sense seems to dictate that there would be only a limited number of scenarios in which a judgment creditor would not want to utilize a collection agency. The same is not true for the agencies. There are many valid reasons for turning down a judgment. Below are just some of them.
1. The Debtor Is Judgment-Proof
The number one reason for turning down a judgment is arguably the fact that the debtor in question is judgment-proof. Utah-based Judgment Collectors explains that a judgment-proof debtor has insufficient income to make monthly payments or pursue wage garnishment. The debtor also doesn’t have any assets of value.
With wage garnishment and asset seizure off the table, a collection agency would have no path forward. The best they could do is work out a payment plan with the debtor. But the original creditor could do the same thing. It is not worth a collection agency’s time and effort to do so.
2. The Judgment Is Too Old
Good wine ages well. As for judgments, not so much. Monetary judgments are most enforceable when they are brand new. Every day a judgment remains unpaid is another day a debtor needs to avoid paying. The older a judgment gets, the harder it is to collect.
Collection agencies do not follow a hard-and-fast rule to determine how old is too old for taking on a judgment. Each case is based on its own merits. But as a general rule, older judgments are harder to collect. They may not be worth the time and effort if the potential payoff is too small.
3. The Judgment Is Too Small
Expanding on the previous point, collection agencies look at the total value of a judgment when determining whether to take it. Remember that debt collection is a business. Collection agencies work on margins just like any other kind of business. This dictates that a judgment needs to be valuable enough to make pursuing it worthwhile.
For the record, margin is the amount of revenue that constitutes profit. If a collection agency spends $99 to collect a $100 debt, its profit margin is just 1%. The agency still makes a profit, but not much.
My example makes clear that some judgments are just too small for collection agencies to worry about. It is not enough that an agency makes a profit. It needs to make enough of a profit to justify the time and expense put into collection efforts.
4. Insufficient Asset Information
Finally, collection agencies want as much information as possible about a debtor’s assets before making a decision. They need to know what their risks are. They need to know their chances of success. Both often lie in the debtor’s assets. Therefore, insufficient asset information could be enough to scare a collection agency away.
Without sufficient knowledge, an agency doesn’t know what it is getting into. Moreover, they may not want to put in the time and effort to get that information.
Turning an unpaid judgment over to a collection agency is one way to pursue payment. But there are times when collection agencies just aren’t interested. At that point, a judgment creditor is left to either handle collection or turn it over to an attorney. There are pros and cons to both.
