Between the decision to sue and the final outcome of that decision, a number of steps take place and several outcomes are possible. What actually happens once an account is submitted to an attorney to file suit? Here's a brief summary.

Getting Things Started – Summons and Complaint

Once the creditor authorizes a lawsuit, the attorney is provided with the required advancements and documentation, and is instructed to proceed. The first step the attorney takes is to file the Complaint with the appropriate court. The Complaint sets forth the amount due and outlines the basis of the creditor's case. A process server or local sheriff serves the debtor with the Summons and Complaint. This action puts the debtor on notice that he is being sued, and provides the basis of the claim against him. The national average for successfully serving a debtor is approximately 2 - 3 weeks. Once served, the debtor has a specified time frame in which to file an answer to the lawsuit. This varies by jurisdiction, but typically ranges from 20 to 45 days.

Default Judgment

Should the debtor fail to file an answer within the specified time frame, the collection attorney will enter a Motion for Default Judgment. This requests the court to enter judgment against the debtor, since he has not come forward to defend himself. Once a default judgment is rendered, most jurisdictions have a short waiting period (2-3 weeks) before a final judgment is entered. This gives the debtor every possible chance to have his day in court.

Summary Judgment

If the debtor files an Answer to the lawsuit, the collection attorney cannot obtain a default judgment. Should the debtor's answer be in the form of a general denial (i.e. it does not include any disputed issues of fact), in most jurisdictions, the collection attorney files a Motion for Summary Judgment. This motion requests the court to render a judgment based on the strength of the evidentiary documentation included with the Complaint, together with the fact that the debtor has not refuted what the documents say. If judgment is granted under this scenario, a waiting period of 2-3 weeks applies before the judgment becomes final.

In most disputed lawsuits, the debtor's answer will include details as to why he is disputing the creditor's claim. These cases normally end up at trial, unless the disputes can be resolved and the case settled out of court.

Going to Trial

Should a trial become necessary, it is usually preceded by the discovery phase of the lawsuit and/or by pre-trial hearings. These serve to narrow the disputed issues and to give each side a better understanding of the opposing side's claims. Unless the case is settled during this phase, a trial will be held at a time set by the court.

Once the trial is held, there are two possible outcomes. Either the creditor wins and a judgment is rendered against the debtor or, the debtor wins, an adverse decision is entered against the creditor, and the case against the debtor is dismissed.

The Final Judgment and Writ of Execution

Let’s assume the creditor wins the case. After the entry of final judgment, should the debtor's statutory time to pay the judgment expire (usually 20-30 days), the creditor is in a position to proceed with an execution. A Writ of Execution is issued to the local sheriff, who tries to arrange payment of the judgment. While working on payment, he assesses the debtor's attachable assets . This is to determine whether it would be in the creditor's best interest to schedule a Sheriff's Sale should the sheriff be unable to collect the judgment directly. Most jurisdictions allow the sheriff 90 days to work the execution. At the end of that period, if the sheriff is unsuccessful in collecting the debt and/or locating attachable assets, he returns the Writ of Execution nulla bona (no good). This means he has conducted a diligent search for attachable assets and has been unsuccessful in locating any.

Supplementary Proceedings – The End of the Line

Once the sheriff has returned the Writ of Execution, the final phase of the collection lawsuit begins. This is called, supplementary proceedings (sometimes referred to as Sup pro). The judgment creditor now has the right to subpoena the principal of the debtor to appear in court to undergo a judgment debtor exam. During this phase, the principal (owner, president, etc.) of the debtor is questioned about any assets the firm may have which the sheriff may not have discovered. These may include accounts receivable, bank accounts, company vehicles, etc. The entire collection process, from the time the claim is placed with a collection agency, is really working toward this final step. If this examination fails to reveal any attachable assets, the matter has hit the end of the road! The debtor has no assets with which to pay the judgment, leaving the creditor with no further options.

Fortunately (for creditors) most lawsuits do not progress all the way to supplementary proceedings. Default judgments are obtained on most, and many others are settled prior to trial, sometimes on the courthouse steps!

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Disclaimer: This article is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.

Robert (Bob) M. Tharnish is a Vice President, International of ABC-Amega Inc. and has 28 years experience in U.S. and international debt collection.

Information provided by ABC-Amega Inc. Since 1929, providing first party accounts receivable collections outsourcing and third party debt collection for management of your commercial receivables portfolio.