Should You Sell Your Judgment to a Collection Agency?

Collecting unpaid judgments is not the easiest task in the world. Debtors do not always cooperate with interrogatories. Sometimes they provide inaccurate employment and residency information. Other times they purposely try to hide assets or move away without providing a forwarding address. It is enough to encourage judgment creditors to sell their judgments to collection agencies.

Selling to a collection agency is just one option. But is it the best option? That depends on what you hope to accomplish. Personally, selling to a collection agency is something I would try to avoid. It would be a last-ditch strategy for me. I will explain why in just a minute. But first, let us discuss how selling judgments is even possible.

Judgments Are Considered Assets

A judgment is literally a decision rendered in civil court. It recognizes the legitimacy of a debt and the obligation of the debtor to pay it. Here is the interesting thing: judgments are considered tangible assets under the law. They can be traded in much the same way as securities.

As a tangible asset, a judgment can be sold to a third-party. There are collection agencies that purchase them. Once purchased, a judgment becomes the legal property of the buyer. Meanwhile, the original party in whose favor the judgment was rendered no longer has any legal claim to the associated award. All claims for the award are transferred to the collection agency.

Pennies on the Dollar

As for why I would avoid selling a judgment to a collection agency, it is a matter of money. Collection agencies tend to pay pennies in the dollar. They have no other choice. Whenever a collection agency buys a judgment, it is risking its own money. The agency might never collect.

Furthermore, the agency needs to cover its own costs. Paying pennies on the dollar minimizes risk and allows them to accept less from the debtor while still covering their costs and making a profit. It is a sound business practice from the agency’s standpoint; it represents a huge potential loss for the judgment creditor.

Why would a judgment creditor take such a loss? To be rid of the judgment altogether. Sometimes it’s better to sell and be done with it than trying to continue collection efforts. And yet, there is another option. That option is a collection agency that works on consignment.

The Consignment Model

Collection agencies that work on consignment do not buy debts. Rather, they provide a service for which they are paid. Judgment Collectors, a Utah collection agency located in Salt Lake City, is one example of a consignment-based agency.

When Judgment Collectors takes on a case, they immediately absorb all the costs associated with collecting. They cover their own labor. They pay any expenses associated with their activities. Best of all, they only charge for their service after they collect. Failing to collect means the client does not pay a dime.

A general rule of fun is for the collection agency to charge a fee equal to a certain percentage of the amount collected. This motivates the agency to do their best to collect as much as possible. The more they collect, the more they get paid.

The downside to the consignment model is a lack of guarantees. Collection could ultimately prove fruitless. Under the consignment model, the judgment creditor risks not getting paid. Under the purchase model, the collection agency is the one taking the risk. That is why collection agencies pay so little.

Should you sell your judgment to a collection agency? You now have a bit more information to make that decision.