It’s well known that collecting a money judgment is a tough challenge. Sometimes, judgment creditors find success by negotiating a payment plan or settlement with the debtor. However, more often than not, creditors spend years trying to collect what’s owed. In frustration, some opt to sell their judgments to collection agencies at a fraction of their value.
But why so little? Judgment creditors may be willing to sell for pennies on the dollar just to resolve the issue. The more important question is why collection agencies don’t offer more. When you look at it from a business perspective, the answer becomes clear: it’s all about making informed financial decisions.
Judgments as Assets
Under the law, judgments are classified as assets, similar to other forms of debt, real property, or securities. They can be bought and sold freely.
It’s important to understand that buying a judgment means acquiring the associated rights. A money judgment serves as official recognition of a debt and grants the holder the legal authority to collect the owed amount. When a collection agency purchases a judgment, it gains the right to recover the debt, including any collection costs and interest.
Turning a Judgment Into Profit
A collection agency purchases judgments with the aim of turning a profit, much like buying stocks. The strategy is simple: buy low and sell high. In this case, that means paying as little as possible for a judgment and recovering as much as possible. That’s how profits are maximized.
However, it’s not just about raw profit. Collection agencies also need to account for other factors:
- Expenses: A collection agency must invest in various costs, such as employee salaries, utilities, insurance, and more. Each judgment represents an additional expenditure.
- Time: As time passes, the chance of collecting the full amount diminishes. Collection agencies need to assess the age of the judgment when deciding how much to offer. Older judgments tend to be worth less because they are harder to collect.
- Risks: Risk is perhaps the biggest concern. There’s no guarantee that a collection agency will recover anything. If the collection agency fails to recover the debt, they’ve spent money on a worthless judgment.
Before making an offer, a collection agency weighs all these factors. The higher the risk and the less likely the agency is to recover the full amount, the lower the offer will be.
An Alternative Option
Selling for pennies on the dollar might not be ideal for every judgment creditor. Fortunately, there’s another option: working with a collection agency willing to handle the collection on a consignment basis. For example, Judgment Collectors in Salt Lake City, Utah, operates this way.
Instead of purchasing judgments outright, Judgment Collectors works on consignment, much like how personal injury attorneys work. The agency assumes full responsibility for the collection efforts, covering their own expenses. When they successfully collect, they receive a portion of the total amount. The key difference is that they only get paid if they collect.
Collection agencies that buy judgments outright pay far less than the full value, simply because their businesses rely on it. They can’t afford to pay full value. On the other hand, a consignment-based collection agency is motivated to recover as much as possible, as their payment depends entirely on their success.
