Let’s say you have a “friend” who is very good at borrowing money but not very good at paying it back. The question becomes how to collect debt owed to you quickly. That’s where small claims court comes in. You can use the court to get a judgment and then collect your cash.
I started thinking about this when my client told me someone hit her car in the parking lot of Costco. My client had a high deductible of $1,000. Since the damage was $3,000 he’d get the car repaired, but he’d still be out $1,000. I suggested he sue the person in small claims court, but he didn’t know anything about the process and neither did I, so I decided to find out.
What is small claims court?
If you have suffered damages, you can sue without using an attorney and hopefully collect the money you’re due. In California, you can sue for up to $7,500 and still do so in small claims court. Different states have different limits. The cases are heard quickly and adjudicated inexpensively.
How do you file a small claims lawsuit?
Before you file a claim, you should send a letter demanding payment. The reason for this is that once you file your suit, you’ll have to sign a sworn statement saying you did.
Having sent your letter, get all your records together – anything proving your case. Also, bring to court any witnesses who make your case stronger. When you go down to the courthouse, make sure you have the legal name of the person you are suing as well.
At the courthouse, go to the small claims department and get the proper forms to fill out. You’ll also have to have the filing fees and pay in cash, money order or company check. If you win the case, you’ll get these costs back. Don’t worry.
Keep in mind that you need to file your claim in the country where the injury took place. If somebody smacked your car in LA County, that’s where you file. If they provided a faulty service in Ventura County and you live in LA County, you file in Ventura County. If you are suing a company, you can sue them where the damage occurred or where the business is located. But if you do have a valid claim against a business, they will hopefully have good business insurance and make a settlement. But let’s continue.
Next, you must have the defendant served with your papers. You can use the sheriff or a private process server. I’ll have to admit, if it were me, I’d use a sheriff. (Kind of puts the fear of G-d into somebody when Sheriff John knocks on your door…don’t it?)
Follow up with the court clerk after a few weeks to determine exactly when the defendant was served, because that’s the date that will be used to determine the trial date.
When you get to court, most judges will first suggest that you mediate the claim. If you can’t come to terms, the judge will listen to both sides of the story and review evidence. Be sure to bring all the evidence you might need: pictures, statements, receipts, etc. You should also type up a summary of why you think this person owes you money. The judge will announce his or her decision either right then or later on.
Assuming you win the case, what happens next?
You’ll get a judgment against your defendant, and this is where the fun begins. The court isn’t going to enforce your judgment. If the slug who hit your car doesn’t want to pay up, you’ll have to get to work. You have to identify the defendant’s assets and where he works. This is where you become an expert at personal debt collection.
You can then have his bank account and his wages attached. These steps aren’t the same as IRS Wage Garnishments but it’s still powerful. Without the judgment from the small claims court, that would be tough to do. You also have the options of putting a lien on the defendant’s real estate or getting the sheriff to seize his personal property. If you can’t locate the defendant’s assets, you can ask the court to order him to come in and spill the beans on where the money is. You’ll have to pay to get this done, but you can recover these costs too.
The last time I was in small claims court was when I was 18, and the case was mediated. Have you ever been to small claims court? What was your experience?
Jen Scott says
I let a good friend borrow money over the coarse of 6mo with the agreement that he would pay me back. It ended up adding up to about $4k and he has yet to pay me back. I don’t have any proof since it was several transactions and I always gave him cash. Do I even have a case?
Neal Frankle, CFP ® says
You might – depends on where you live. Do some research on local requirements. What is needed to prove a loan?
Brittany Lacey says
I spent $500 on a motel 6 for my boyfriend (now ex boyfriend) to come to Florida so he had somewhere to sleep. He promised multiple time in person and over text message that he would pay me back for half, 250 was the price him and I discussed. After him leavin Florida and returning to Colorado he stopped texting me and wanted to break up. He still owes me the 250 dollars and I texted him asking for the money today but no response. What can I do? I have three screenshots over text of him saying he will pay me back.
Neal Frankle, CFP ® says
I think the article provides some helpful ideas. Thanks!
Neal
Duke says
Hi Neal,
I loaned an x-friend $4k, I had him sign a contract 1st… He took the contract read it over and returned it w/ a co-borrowers signature along w/ his own. I have no idea of who the co-borrower is… As long as I have his signature is that enough to pursue collection procedures?
Our contract consist of the date of the initial loan, expected paid in full date, and in the event of default he understood that I would collect from any income or assets he possessed.
Neal Frankle, CFP ® says
Sounds like you have enough Duke. I am not an attorney but it seems to me that the inclusion of another party doesn’t relieve your x-friend of his/her responsibilities. Did they change the wording of the document?
Tim says
Haven’t been to small claims court, but I was wondering about your friend whose car was hit in Costco – did the person who hit him not have insurance? You talked about your friend’s insurance and the high deductible, but in this case the other person’s insurance should have paid for it, and in full. Your friend’s collision coverage (and her high deductible) only comes into play if he was at fault.
Ben Lowen says
Not if it was 50/50 but then he/she wouldn’t of had an argument to have them cover the costs. Also sometimes insurance companies can take awhile to get things sorted out between each other so his/her insurance could have covered to get him/her rolling again. If he/she was later found at fault then he has already paid if not then he has his claim.