The decisions rendered by civil courts are known as judgments. When a judgment includes a monetary award, a big part of enforcing that judgment is collecting. Note that a judgment creditor could decide to settle rather than pursuing the full amount. But why would a creditor do that?

The starting point for understanding a creditor’s motivation is the reality that court involvement in collection efforts is limited. Courts will get involved insofar as approving garnishments and issuing rids of execution, but the practical aspects of collection are left up to the creditor. Courts do not send out officers to collect debts.

What It Means to Settle

A post-trial settlement of a money judgment is not the same thing as settling a dispute before going to trial. Post-trial, a settlement is only about the monetary award. Attorneys for the creditor and debtor get together and work out a way to get the debt taken care of quickly and efficiently.

In most cases, a settlement has two primary elements:

  1. The creditor’s agreement to accept less than what is actually owed.
  2. The debtor’s agreement to make an immediate lump-sum payment.

The idea behind this sort of thing is that both parties win. The creditor gets paid and can thereby avoid a long and extended collection process. The creditor gets a discount by paying up right away.

Valid Reasons for Settling

On its face, settling can seem like a pretty raw deal for the creditor. Sometimes it is. But there are legitimate reasons for settling. A judgment creditor needs to look at the current circumstances and future prospects before making a decision. If it is in his best interests to settle, his attorney will probably advise him to do so.

Here are some of the most common reasons for settling:

1. The Debtor Appears Judgment Proof

The most common reason for settling is that the debtor appears judgment proof. Utah-based Judgment Collectors, a collection agency that specializes in judgments, explains that a judgment proof debtor is one with limited financial resources and no assets of value.

Trying to collect from a judgment proof debtor is like getting blood from a stone. So if a settlement offers enough, taking less than what is owed is better than getting nothing at all.

2. The Creditor Needs the Cash

Some settlements are motivated by the fact that the creditor needs cash. Maybe it’s a small business whose cash flow is limited by seasonal sales. It is better to accept a settlement along with its influx of cash than continue struggling with limited cash flow.

3. The Time Commitment Is Too Much

A judgment creditor may choose to settle upon understanding how much time it could take to pursue full collection. As Judgment Collectors explains, collecting a judgment is rarely a quick process. Collection can drag on for years in some cases. There are just some creditors who do not want to put that much time into it. They would rather settle.

4. The Creditor Lacks Resources

A lack of resources is yet another reason for settling. Perhaps the creditor doesn’t have the means or ability to search for assets, verify income, and hunt down a debtor trying to hide. So it’s better to just settle and put the whole affair to rest.

Some money judgments are worth pursuing until every dime is paid. Others are not. In terms of the latter, circumstances often dictate that settling is a better deal. Settling puts the case to bed in a way that satisfies both parties. Though it’s not ideal, settling is always an option.