Can You Collect Your Damages After Winning Your Lawsuit?

Can You Collect Your Damages After Winning Your Lawsuit?

When someone has wronged you, it is tempting to file a lawsuit as fast as possible. But before taking that step, it is important to discuss with experienced attorneys what happens if you win. If the jury awards damages to you, how do you go about collecting that award? To make an informed decision about the costs and benefits of litigation, you and your counsel need to discuss potential barriers to collection. If you do file a lawsuit, understanding collectability issues will make for a more informed settlement strategy as litigation unfolds.

For example, some defendants may be “judgment proof” because they are insolvent, or they may become insolvent during litigation. Other defendants may have hidden their assets, or a defendant may be an empty corporate shell. In some situations your costs of collecting may be substantial, perhaps as much as winning the underlying suit. Considering these issues at the outset is crucial.

Experienced counsel can defeat or mitigate the following tactics that defendants often use to delay or avoid collection:

Moving assets to another jurisdiction;
Fraudulently transferring assets to another person or entity;
Relocating to another jurisdiction;
Filing for bankruptcy, which may preclude all recovery efforts;
Appealing the trial-court judgment, which can delay enforcement for a substantial period of time;
Placing real property in land trusts; and
Placing property in offshore asset protection trusts.

Certain pretrial steps can be taken to protect your claim against a defendant’s assets. For example, plaintiffs can obtain temporary restraining orders or preliminary injunctions that prohibit defendants from transferring assets or encumbering them with new debt. Plaintiffs can also obtain prejudgment writs of attachment that create liens on a defendant’s assets to secure payment of an ultimate damages award. A receivership is another way to preserve assets for collection, as it places a defendant’s assets into the custody of a neutral third party.

After a plaintiff has won a lawsuit, counsel can record judgment liens to give the prevailing plaintiff priority over a defendant’s other creditors. In addition, counsel can pursue special collection remedies such as wage garnishment and charging orders on LLC interests owned by the defendant and can record judgments in other jurisdictions, which gives the plaintiff the right to enforce the judgment in other states and countries.

Due diligence and discovery are also important tools in evaluating collectability. Depositions and other discovery procedures, including subpoenas on third parties who possess information about a defendant’s financial affairs, can help determine a defendant’s assets and the existence of other creditors. Searches of public records can also reveal assets and competing creditor claims.

Plaintiffs sometimes believe they can avoid these issues by selling claims to a collections agency, but in doing so they often receive substantially less than the full value of a damages award.

If you: