All credit professionals have experienced clients or customers with past due balances. They make repeated promises to pay …. but never do. We appeal, without success, to their sense of honor and fair play, their legal and moral obligation, and threaten them with held orders, reduction of credit availability, interest, poor credit report and still nothing works. They just won’t pay.

In the majority of cases, it isn’t worthwhile to bring a lawsuit to county, district, municipal or superior court to collect a small sum of money (considered less than $7,500). An attorney will normally charge a retainer fee between $5,000 and $10,000 to open a new case and most will not consider working a breech of contact case on contingency. The retainer usually does not include costs such as filing & summons fees, depositions and additional hearings where the opposing counsel may file motions for the sole purpose of slowing down the process. Although the legal process may be slowed, costs continue and normally accelerate because our attorney is compelled to answer each motion filed by opposing counsel.

What Can a Creditor Do?

 Every state and the District of Columbia have a system of small claims courts that can be utilized to collect judgments for small amounts of money and resolve disputes. Small claims courts began to appear in the early 1960 when Justice of the Peace Courts were increasingly becoming obsolete and it was felt, within the legal community, there was a need to have a court where people could represent themselves without the benefit of legal counsel. Small claims courts are under the jurisdiction of state courts.  There is no equivalent to a small claims court in the U.S. Federal Court system with the exception of Federal Tax Court.

 Collecting Bills in Small Claims Court

 Small claims court can be particularly cost effective for collecting unpaid bills because it eliminates the need for an attorney. In fact, small claims court works so well that in many courts over 60% of the cases heard are filed by businesses both large and small. A large percentage of these filings are uncontested by the defendant (they know they owe the money and fail to appear at trial), therefore, little preparation or actual court time is required of the plaintiff. Best of all, many defendants who don’t want their credit history damaged pay voluntarily – sometime between receiving the final demand letter and summons and the date judgment is issued. According to the National Center for State Courts, in a study of 996 small claims cases the plaintiff won 80% of the time. Also in those 80% the plaintiff was awarded the full amount sued for 90% and in the remaining 10% received more than 50% of the amount claimed.

 Resolving Disputes in Small Claims Court

 Disputes between businesses and its customer and/or vendor are also common in small claims court. Most involve a contract. Commonly, one business will argue that goods and/or services were of poor quality, provided late or not at all. If the parties don’t negotiate their own solution or arrive at one through mediation, each would have the opportunity to present their side of the story to a small claims judge.

  Upon presenting their case the judge will decide the case based on both testimony and evidence produced during trial. Instead of waiting for months for a decision, as can happen in normal court proceedings, the judge will either announce his/her decision immediately or mail it to both parties within a few days following the conclusion of the trial. Either way, both parties will know where they stand and be able to return to operating their business.

 Small Claims Court Jurisdictional Limits

Small claims courts have a maximum monetary limit to the amount of judgment it can award. The maximum limit varies from state to state according to the state law. The following are jurisdictional limits that were in effect as of January 1, 2006.

 Less than $2000.00

 Kentucky

 $2000 - $3000

Alabama, Arizona, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Jersey, Ohio, Rhode Island, Virginia and town and village courts in New York state.

$3500 - $4500

Hawaii, Idaho, Kansas, Maine, Vermont and Washington State.

$5000

Arkansas, Connecticut, District of Columbia, Florida, Iowa, Nevada, New Hampshire, New York, North Carolina, North Dakota, Oregon, Texas, West Virginia, Wisconsin and Wyoming.

$6000 - $7500

California, Colorado, Indiana, Minnesota, Oklahoma, South Carolina and Utah.

$8000

Pennsylvania and South Dakota.

$10,000

Alaska, Illinois and New Mexico.

$15,000 

Delaware, Georgia and Tennessee.

$25,000

Shelby and Anderson counties in Tennessee.

Small claim maximum amounts have increased substantially over the last ten years as states look for ways to reduce the number of lawsuits filed in count, municipal, district and superior courts. One of the ways is to increase the maximum limits in small claims court. It is highly recommended that the small claims clerks’ office be contacted annually to determine if there have been any increases made to the maximum limit.

When suing in small claims court, the plaintiff waives any rights to any amount owed over the jurisdiction of the court. An example would be a creditor who is owed $6,500 in Texas where the maximum amount the small claims court can award is $5000. If the creditor chooses to file its lawsuit in small claims it would waive $1,500 of the debt owed and settle for $5000 if they won the case.

Plaintiffs are allowed to reduce their claims to the amount of the courts jurisdiction in small claims court.

Small Claims Court Operations

In small claims court the Rules of Civil Procedure and Evidence are typically less stringent and enforced as in other courts. The principle in small claims court is that cases can be conducted by the common person without benefit of having any knowledge or training in the law. However, in many jurisdictions a corporation must appear represented by an attorney if they are the defendants. Rules of Pleadings are also simplified. In many jurisdictions no answer is required of the defendant and default judgment is not available to the plaintiff if the defendant does not file a written response to the complaint. Instead, all matters filed in small claims court are scheduled for trial. Jury trials are seldom but can be requested by the defendant. In which case the defendant pays a fee to sit a jury. Most jurisdictions do not permit the plaintiff to sit a jury but there are exceptions.

Frequently Asked Questions

The following are the most frequently asked questions concerning small claims court.

Is filing a lawsuit in small claims court complicated?

In the majority of states, the paperwork consists of a one-page form. It asks for the filers’ name, address and phone number. The name and address of the person or business being sued. If suing a corporation it also asks for the name and address of the registered agent. When suing a corporation the summons is always served upon the registered agent. The amount, not including court costs and filing fees, that is being sued for and a summary of the basis of the lawsuit, i.e., breech of contract, etc. If there are questions ask to speak to the court clerk who may assist in filling out the form.

Where is suit filed?

Generally, the suit is filed in the county where the party being sued, the defendant resides. If there is a written agreement and it includes whose state law governs the agreement then the filing would take place in the county where the transaction occurred in that state. If there is more than one small claims court in the county than the filing occurs in the court whose precinct covers the area where the defendant resides or the transaction took place.

How much does it cost to sue?

Fees vary from state to state. Generally, the filing fee is less then $50.00. The court may charge an additional fee for service of process by constable, sheriff or registered mail. The exact procedures followed in each small claims court may be slightly different even in the same state and the fees can change. Call the court and make sure that you have all the necessary information.

What kinds of cases can be taken to small claims court?

Lawsuits involving contracts, security deposits, personal injuries, and warranties are common in small claims court.

Are there time limits on when a lawsuit can be filed?

All states have “statutes of limitations” which limit the time for suing after an event occurs or, in some instances, is discovered. These rules apply in small claims court. For actions involving an unwritten agreement you generally have two years to file the lawsuit. If there is a written agreement, you usually have four years to start the lawsuit. Check with the appropriate state where the lawsuit is to be filed to determine the statute of limitations.

What happens at trial?

On the day of the trial both parties are ordered to appear before the judge. The court will also hear the defendant’s counterclaim, if one has been filed. After both parties have presented their case, heard testimony form any witnesses, and presented their evidence to the court the judge will make a decision. Often the decision is announced at trial, however, the judge has 10 working days to consider the facts of the case and any evidence presented, research the law, make a decision and notify the parties of the decision by mail.

What happens if the parties do not appear at trial?

If the defendant fails to appear, the judge may hear testimony from the plaintiff and any witnesses, examine evidence presented by the plaintiff and enter a judgment against the defendant. This is known as default judgment. If the plaintiff fails to appear at trial, the court may, and probably will, dismiss the case. If both the plaintiff and defendant fail to appear the case will be dismissed.

Can the court’s decision be appealed?

Law varies from state to state. In some states neither party can appeal the judge’s decision. In other states the defendant has the right to appeal within 30 days to a higher court, usually county or municipal. Many states prohibit the plaintiff from appealing. Check with the court clerk to determine if there exists an appeal process in the court where the lawsuit is filed.

What do you do after receiving judgment?

Once judgment is rendered you must wait the number of days that the judgment debtor has to appeal. 10 to 30 days depending on the jurisdiction.

If the debtor does not appeal you then request from the court an abstract of judgment. This is the official document stating that you have been awarded judgment and lists the amount and the name of the judgment debtor. This document should then be recorded with the county clerk office in the county where the debtor resides.

How long is the judgment good for?

Judgments are good for 10 years and can be renewed prior to expiration for an additional 10 years. A properly recorded judgment will attach to any real property in the county where it is recorded and in some states will include any real property in the state.   

If we win does the court pay us?

No! Judgment allows the victor to either garnish or execute on property of the person or business that has the judgment against them. The court, however, will assist in identifying assets to be garnished or taken possession of. This is done through a debtor’s examination conducted through the court. This can be done immediately after judgment is rendered or at a later date. Once assets have been identified such as debtors’ employment or bank accounts a writ of garnishment can be applied for through the court. A writ of execution empowers the constable or sheriff to take possession of assets of the debtor. The creditor must provide a description of the property and its location. Some sheriff’s require that a bond be posted before they will take possession of a judgment debtor’s property. The clerk of the court will be able to provide garnishment or execution forms along with information about fees or bond postings.

Summary

It is important to realize that when you file a matter in small claims, you do most of the work yourself. It will be your responsibility to gather evidence, prepare documents, subpoena and interview witnesses, represent yourself at trial. It will also be your responsibility to check with the clerk of the court about trial dates.

For more information the bar association in just about every state publishes a short guidebook, in pamphlet form, that will take you step by step through the small claims process in that state. These pamphlets are usually available at no charge or for a small mailing fee.

I wish you well.  

The information provided above is for educational purposes only and not provided as legal advice. Legal advice should be obtained from a licensed attorney in good standing with the Bar Association and preferably Board Certified in either Creditor Rights or Bankruptcy.