Collect Out of State JudgmentsIt used to be common that your business was truly local. As you got that business off the ground, you looked to your local community for your customers. Before online sales became an important part of most businesses, you probably only worked with people you met in person and who were located near your business. If you sold something to someone and they agreed to pay you later, you often were not concerned about getting paid. When too much time had passed, either you could go visit them or you would run into them around town and be able to give them a subtle reminder that they still hadn't paid you for that widget.

These days, it's more common that your customers may be located far away from you. Many of them you may never meet in person. So, it becomes more of a challenge when those remote customers aren't paying their bills. If their non-payment gets really chronic, you may end up having to sue them to collect your money. But what happens when you've won that lawsuit and now you need to collect your money, but the other party lives in a different state?

A Quick Note on Your Contracts

If you end up with people who owe you money, one of the first things you need to do is review your contract with them (if there is one). There are a few important clauses to consider at the outset. One of the first is called a jurisdiction clause - it says what law you will be applying and what state any lawsuit needs to be brought in. Another clause to look for is one that requires the parties to attend mediation before bringing a lawsuit (if you have one of these, you can't immediately bring a lawsuit against the other person). Finally, an important part of calculating the cost of a lawsuit to you is to check for a provision that provides for the payment of lawyer fees if there's been a breach of the contract. There will be more provisions to consider, but these provisions typically provide you with a roadmap for where any lawsuit would be heard and who will be paying for it.

What Type of Judgment Do You Have?

If you've already gone through the lawsuit and have received a judgment from your court, it's important to see what kind of judgment you have. These judgments fall into 2 main categories:

  • Default Judgment - the other party did not participate in the lawsuit
  • Judgment After Trial - the other party participated, the case went to a trial before a judge or jury

Both of these types of judgment entitle you to money, however, when you are trying to collect your money, there can be a difference in how another court will treat the judgment.

Registering Your Judgment in Another State

Back to our original question, what should you do when the other party lives in another state? The short answer is that you should find an attorney in that other state and discuss registering your judgment in that local state. When you register your judgment in another state, the local courts of that state will treat your judgment like it was issued by the local court. This can allow you to use more methods to collect on the judgment balance.

BIG ISSUE THAT YOU NEED TO KNOW ABOUT: There's one very large issue that you'll need to resolve and that will be the rules of the local courts. In many states, a default judgment will be treated differently than a judgment after trial. For example, in New York, you can simply register the foreign judgment and begin enforcing it if it was a judgment after trial. However, if it was a default judgment, you actually need to commence an entirely new lawsuit and serve it upon the other party. It's an expedited procedure compared to a traditional lawsuit, but it will still take longer than simply registering and enforcing it would. These differences are why it's very important to speak to a local attorney who is versed in the local procedures. 

Registering your judgment in the other party's state can be an effective way to collect on the money you are owed. However, you want to know what you are getting into and the local procedures to collect on an out-of-state judgment.

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Next Steps

If you've got a judgment against a party in Connecticut, Minnesota, New Jersey or New York, let's set up a Legal Strategy Session to discuss some options to help you collect what you are owed.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.
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