What’s driving the rising volume of Judgment sales?
The limited supply of charged-off credit cards available in the debt sales market has increased demand and pricing for alternative products among inventory-starved Debt Purchasers nationwide. As a result, over the past 18-24 months we’ve seen a dramatic spike in sales activity for several different asset classes and product types. One market that’s been particularly active is Dormant (aka Inactive) Judgments. Though the definition varies slightly from one party to the next, the term dormant generally applies to Judgments that are still valid (ie. haven’t expired) but that haven’t had any payment activity within the last 12-18 months. This also includes Judgments which have never paid.
Industry statistics vary but it’s widely believed that as many as 80% of court awarded judgments go uncollected. As a result, the total outstanding volume of uncollected Judgments may add up to billions or even trillions of dollars! There are many reasons for this but what it typically comes down to is that it’s often far more difficult than many realize to execute (collect) on a Judgment. A debtor may disagree with the court’s decision and simply refuse to pay. Alternatively, the creditor may have difficulty locating the debtor after the Judgment is awarded. Many Judgment creditors simply don’t know how to enforce Judgments or don’t want to take necessary actions.
For Creditors, who may be holding Dormant Judgments, there are several advantages to selling these accounts. First, a sale represents an opportunity to capture immediate cash that can be redeployed into your core business. Second, as the judgment matures, its value will fall(despite a rising balance due to the interest accrual). In our experience however, even Judgments that are 10-20 years old have value to Buyers depending on the individual circumstances. Third, many Creditors lack the resources to properly manage the collection process beyond the initial placement. Fourth, gathering information on Judgments to prepare for a sale is relatively straightforward compared to the requirements for a pre-judgment account, significantly reducing the time and effort involved to get a sale done. Lastly, for many Creditors, a sale can be attractive as it limits the reputation risk creditors face for what’s often a necessary but unpopular action.