It can be awfully frustrating to spend year after year chasing down a debtor in hopes of collecting on an outstanding judgment. Unfortunately, creditors tend to do so more often than they should. Many of them ultimately resort to selling their judgments to collection agencies. But is doing so a wise idea?
Utilizing a specialized judgment collector might be the only way to get paid. The standard business model for collection agencies is to purchase judgments outright. They pay to become the legal owners of a judgment and then make collection their business. A second model involves the collection agency working on a contingency basis. Both models have their pros and cons.
Selling Your Judgments
Because judgments are legal instruments created as the result of successful litigation, they constitute assets that can be bought and sold, a lot like securities. Selling a judgment is attractive because it settles the issue immediately, at least from the seller’s standpoint. Putting a judgment to rest by selling it can be rather enticing to a company that has spent years chasing down debtors.
Some of the other benefits of selling include:
- eliminating the distraction of debt collection
- freeing up resources for other business functions
- disposing of the debt risk free
- instant cash in exchange for transferring ownership
- the satisfaction of knowing the collection agency will probably succeed.
All things considered, selling your judgments can seem like the perfect solution. But according to Salt Lake City’s Judgment Collectors, there is one big drawback to selling: your company is not likely to get full value. In fact, you might get a lot less than you expected.
Judgments have limited value to collection agencies based on numerous factors. These include:
- judgment type
- judgment amount
- judgment age
- debtor income and assets.
Also bear in mind that collection agencies have to be able to cover their own costs and make some profit at the same time. They cannot offer full value and still do that. So even on the most lucrative of judgments, you have to be prepared to accept less.
Collecting on Contingency
If selling judgments outright does not seem attractive, collecting on contingency is another option. Under the contingency model, you retain ownership of the judgment but give the collection agency authority to work on your behalf. The agency provides a pricing model that offers you a certain amount upon successful recovery.
The upside to the contingency model is the possibility of your company ultimately getting more money. Collection agencies can generally offer better pricing on a contingency because they are not spending money in advance to purchase the judgment. Their overall risk is lower, so their pricing can be higher.
The downside is that there is no guarantee the collection agency will succeed. Your company may have already spent several years working on the collection unsuccessfully. The collection agency may do the same. You could eventually find yourself back in court asking for the judgment to be extended for another 10 years. You could unintentionally be working to extend the process in perpetuity.
Track Record Is Everything
Selling your judgments might be wise in some cases, but unwise in others. What really counts is your collection agency’s track record. Regardless of the model the agency operates under, you would expect that agency to be highly successful. If not, it might not really matter which business model it operates under. An agency that can get the job done is critical whether you sell your judgments or put them out for collection on contingency.