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?
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.
Bills in Small Claims Court
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.
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
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
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
$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
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.
Pennsylvania and South Dakota.
Alaska, Illinois and New Mexico.
Delaware, Georgia and Tennessee.
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.
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
Plaintiffs are allowed to
reduce their claims to the amount of the courts jurisdiction in small claims
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
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
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?
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
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
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
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
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.
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
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