Small Claims Court & Debt Collection

Small claims courts are specialized branches of state court systems designed to resolve issues involving relatively small amounts of money. The Rules of Civil Procedure that govern typical lawsuits are less rigorously applied in small claims court. This makes it less expensive and procedurally easier to collect on relatively small debts. Importantly, a judgment from a small claims court is enforceable to the same extent as a judgment from a typical state court.

Claim Value

Each state sets its own threshold rules for the maximum value of claims that can be heard in small claims court. Claims that exceed the state threshold value will be heard in normal state court, not small claims court. Claims that have a value of less than the threshold amount can be heard in either small claims court or normal state court, depending on the election of the plaintiff debt collector. In general, states thresholds range from $2,500 all the way up to $25,000.

Procedure

The procedures involved in small claims court are much less complicated than those involved normal state court. Very little paperwork is involved in small claims court. Typically, a small claims lawsuit is initiated when a plaintiff debt collector files an affidavit or complaint. The defendant then has the option to file an answer challenging the complaint. After an answer is filed, the small claims court will schedule a hearing, which is basically a mini trial, where each side will tell his side of the story.

Judgment

After the hearing, the small claims court judge will issue a judgment, which is a formal finding in favor of one of the parties. If the creditor wins, then the small claims court judgment will include an order for the defendant to pay damages to the creditor.

Satisfaction

Obtaining a small claims court judgment is just the first step in actually collecting a debt. After obtaining a judgment, the creditor must then satisfy the judgment by either seizing property or garnishing wages. Creditors can generally satisfy a small claims court judgment by seizing any of the defendant's property that is not specifically protected by state law. Home equity is generally protected up to a certain amount of value, as are retirement accounts. But personal savings or checking accounts generally are not protected from seizure. Additionally, the creditor can satisfy the judgment by filing paperwork with the defendant's employer. This is called garnishing wages. Your employer will then pay a certain amount of each of your paychecks to the creditor, generally up to about 25 percent of each check, until the judgment is fully paid off.