Collecting Accounts Receivable Part III: Obtaining a Judgment Against a Delinquent Customer
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This Blog is Part III in a series of Blogs designed to provide business owners with a high-level overview of the legal process for collecting on past-due accounts receivables. Specifically, Part III focuses on the actions a business owner should take immediately upon obtaining a final judgment against a delinquent customer.
This may sound counterintuitive, but a judgment creditor’s first concern should not be with collecting on the judgment; rather, the first concern for a judgment creditor should be establishing and protecting its creditor status and the “priority” of its claim against the debtor. If the judgment creditor’s priority status is not first established, then that creditor is in danger of losing preferred status while it attempts to collect from that debtor.
Many who are exposed to this process for the first time may be asking, “What does it mean to protect my creditor status and to establish my priority?” First, it is not enough to merely obtain a judgment from the Court; the business owner must then record the judgment within the official records of both the county and the state. Recording the judgment establishes your creditor status and priority as to that debtor. The following scenarios may help explain this:
- “Creditor A” obtains a judgment against Debtor in January and records it in the official records in February. If “Creditor A” is the only entity to obtain and record a judgment against Debtor then “Creditor A” has established its creditor status as having first priority.
- “Creditor B” then obtains a judgment against Debtor in March and records it in April. Since “Creditor B” is the second entity to obtain and record a judgment against Debtor, it has established its creditor status as having second priority.
- However, let’s say “Creditor C” then obtains a judgment against Debtor in May yet fails to record it in the official records. Next, “Creditor D” obtains a judgment against Debtor in June and records it immediately. A few weeks later, during the month of July, “Creditor C” finally gets around to recording its judgment against Debtor. Even though “Creditor C” was the third entity to obtain a judgment against Debtor, it was fourth in line when it came to recording the judgment. As a result, “Creditor C” missed out on having third priority creditor status against Debtor and now has fourth priority creditor status.
In the scenario just described, if Debtor’s available assets are completely depleted by satisfying the judgments of creditors A, B & D, then “Creditor C” totally missed its opportunity for recovery on its judgment because it failed to make recording the judgment its first concern. This illustrates the importance of recording the judgment immediately after obtaining it from the Court.
Not just any judgment can be recorded—to be official, the State of Florida, pursuant to Section 55.10(1), Florida Statutes, requires that a certified copy of the judgment be recorded. It is not difficult or expensive to obtain a certified copy of the judgment. Once the Court enters the final judgment order, the creditor can then request a certified copy from the clerk of court. In Duval County, Florida, for example, the fee for a certified judgment is $1.00 per page and $2.00 for the certification.
Every judgment creditor should record a certified copy of the judgment within the official records of two offices: (1) the Florida Secretary of State, and (2) any county in which the debtor owns real property. Recording the judgment with the Florida Secretary of State establishes a creditor’s priority status as to the debtor’s personal property. The Florida Secretary of State has established a website (Sunbiz.org) where a creditor can search for a debtor to find its creditor status and priority.
Recording the judgment within each individual county where the debtor owns real property will establish that creditor’s priority status as to that real property. This is why it is important for a judgment creditor to do its research, including thorough post-judgment discovery, to determine exactly where all of the debtor’s real property is located.
The bottom line is that a judgment creditor must be diligent, and not just obtain the judgment, but record the judgment with both the Florida Secretary of State and the proper counties. Doing so will secure the creditor’s priority status and provide the creditor with a valid judgment lien, which then gives the creditor the right to proceed against the debtor’s property through a writ of execution, writ of garnishment or other post-judgment collection tactics.
Stay tuned for Part IV of this Blog series, which details the various methods for conducting post-judgment discovery.