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Examining litigation, step by step

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Last month’s column addressed some options for collecting accounts receivable, including filing a lawsuit. This month’s article looks more closely at the common steps in litigation and some things you might consider before, during, and after starting a lawsuit.

The Claim. The initial step to most every lawsuit is evaluating your claim and determining whether to file suit. Many claims are not worth the cost of litigation.

The debtor may lack the resources to pay the judgment, or the debtor could file bankruptcy to discharge the debt. In addition, the claim may be hard to prove.

Pre-Litigation Negotiations. Contacting the debtor is often the best place to start. Through communication, you may avoid litigation, or at least get an understanding of the collectability of the debt. A debt workout agreement might also be entered into. If so, having the debtor promise to pay in writing is important. A signed promissory note acknowledging the debt due can be helpful. So too is having the debtor pledge assets to secure the note.

The Complaint. The lawsuit starts with your filing a complaint with the court and serving it on the debtor. The complaint sets forth the factual and legal basis of your claim, and demands payment. It often includes a request for interest on your claim, plus the payment of your attorneys’ fees and costs incurred to reduce your debt to a judgment, provided the law allows for such a fees and costs award.

The Answer. After the lawsuit is served, the debtor normally has 20 days in which to file a formal reply, called an Answer, with the court. In this Answer, the debtor will admit or deny the complaint’s allegations. If the debtor fails to file an answer, you likely will take a judgment by default. A default judgment has the same force as another type of judgment, except that for one year from its entry the debtor can seek to vacate the default judgment.

Discovery. Following the complaint, the parties will often engage in discovery. Discovery is the process by which each side learns the alleged facts in support of the other’s claims and defenses stated in the complaint and answer.

The rules for discovery allow for broad questions and requests. The parties can also subpoena documents from third parties, take depositions of witnesses and the opposing party and demand the right to inspect real or personal property. Depositions require the witness or party appear before a certified court reporter to have their statement recorded under oath. Discovery can be a frustrating part of the lawsuit experience. It can be expensive, slow and time consuming.

Pre-Judgment Considerations. A creditor seeking judgment has a number of tools to help secure payment of a judgment prior to their obtaining a judgment. Under the right circumstances, a creditor can tie up a debtor’s real or personal property with pre-judgment writs of execution or garnishment, or with a pre-judgment injunction.

These can be effective tools to pressure debt payment or secure future payment. They also help limit a debtor’s transfer of assets before the creditor can reduce the creditor’s claim to a judgment.

To protect the debtor from inappropriate use of pre-judgment writs or injunctions, Washington law requires the creditor post a bond or other security payable to the debtor, if the creditor is unable to reduce its claim to a judgment, abuses the pre-judgment process or fails to litigate its claim to a timely judgment.

The Judgment. A creditor most likely will get a judgment either because the debtor failed to defend the lawsuit (a default judgment), was granted a judgment at a hearing because no trial was required (a summary judgment) or following a trial. In addition, some debtors may agree to entry of a judgment as part of a debt workout arrangement.

Some say getting the judgment is only half the case. The debt must still be collected. The judgment serves as a lien on any real property of the debtor in the county in which the judgment was entered, or where it may be later transferred. A judgment, however, is not a lien on personal property, such as a debtor’s vehicles.

After the Judgment. A judgment creditor has many tools to collect on a judgment. These include wage or account garnishments, sheriff executions on personal property and the sale of real property. But Washington law does not permit a judgment creditor to strip the debtor of all the debtor’s possessions. Washington’s exemption statute lists the exemptions available to the debtor.

A judgment is valid for 10 years.

Bankruptcy will also alter the ability of the creditor to collect on a judgment. While the judgment normally prevents a debtor from challenging the amount due in the bankruptcy court, the debtor can seek to discharge the debt, pay less than the full judgment amount or structure the payments.

Brian A. Walker is a debt collection attorney with Ogden Murphy Wallace PLLC representing businesses and individuals in commercial, business, and real estate litigation and transactions.