Collecting Self-Employed Judgments: Hard, But Not Impossible

Collecting on a civil judgment is rarely a simple exercise. Just the fact that a judgment needs to be entered against a debtor to compel payment indicates the debtor is not necessarily willing to cooperate. When the debtor is self-employed, the job can be even harder. The good news is that it is not impossible.

Self-employed individuals have a slight advantage in the judgment collection game in that their wages cannot be garnished for payment. More on that in a minute. There is also the matter of business and personal assets. Depending on how a self-employed person’s business is structured, there may be certain assets that cannot be touched.

Your best bet for collecting a judgment against a self-employed individual is to seek out professional help. Debt collection agencies that specialize exclusively in judgments have the knowledge, tools, and resources to succeed. They are far more qualified to handle the job than traditional collection agencies, attorneys, and creditors themselves.

The Wage Garnishment Issue

Wage garnishment is a tool available to debt collectors in most states. The principle behind it is quite simple. When a creditor wins a judgment, it has the legal right to extract payment by confiscating some of the debtor’s disposable income. A garnishment order is written and served to the debtor’s employer. By law, the employer must withhold a certain amount of the debtor’s income and forward it to the creditor or its representative.

The challenge presented by self-employed individuals is this: they do not earn wages. The law defines wages as a payment rendered by an employer to an employee, for work performed. A self-employed person does not work for a separate entity. Therefore, no wages are paid. Income is structured as payment for products or services.

The wage garnishment issue can make it difficult to collect against self-employed debtors. However, recent changes to California law make collecting judgments a bit easier in the Golden State. According to Judgment Collectors, new worker classification rulers have made a lot of people who were previously considered independent contractors legal employees of the companies they work for. This has eliminated a considerable number of self-employed workers.

Focusing On Other Assets

This post started with the premise that collecting self-employed judgments in California, while hard, isn’t impossible. Even with wage garnishment out of the equation, creditors still have tools at their disposal. For instance, they can focus collection efforts on other assets.

Most states allow garnishment of both personal property and income considered ‘non-earnings’. Property garnishment would involve personal property utilized by the self-employed person to conduct business. Garnishment of non-earnings income would involve all sorts of one-time payments. A contract payment would certainly fit the bill.

This is where debt collectors have an advantage. Where traditional wage garnishment only allows creditors to garnish a certain portion of a debtor’s disposal income, non-earnings garnishment allows the creditor to take 100%. On the downside, such a garnishment is a one-time deal. Wage garnishment can be ongoing until the debt is fully paid.

Liens and Asset Seizure

If necessary, creditors can enforce collection through liens and asset seizure. A lien can be placed on a piece of property owned by the debtor. Perhaps that property can be seized and sold as well. Liens and asset seizure tend to be tools of last resort, but just the threat of either one is often enough to motivate a debtor to pay up.

Admittedly, collecting judgments against self-employed individuals is more difficult. Yet it is not impossible to do. Success is a matter of knowing what the law allows and taking full advantage of it.

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