Today’s lesson involves the litigation process. Here’s how it works. Assume Joe loans his friend Bob $50,000. Bob is broke, which is why he’s borrowing the money. Bob is still broke when the loan comes due, the $50,000 is gone, and Joe and Bob are now former friends.

Joe hires an attorney and sues Bob. Paperwork is prepared and filed, along with a filing fee for the court. A process server shows up at Bob’s house, says “are you Bob,” and hands him the papers. Bob has been served, and throwing the papers on the ground and spitting/stepping on them doesn’t change that fact. (This happened, really! The guy who owed the money was served at the airport, my process server saw the spittle and the heal mark, and in the end my client received payment in full!)

Bob gets a period of time to file a written answer … and pay a filing fee to the court. If he doesn’t answer he loses by default although, under Arizona law, he’ll get a second chance before he really loses.

If Bob answers, the parties get time to exchange written information about the facts and law which support their positions. They must also share information about witnesses and their expected testimony, as well as copies of relevant documents, and any relevant information about insurance. (These documents are called Disclosure Statements.)

Joe and Bob can also seek information through the discovery process.  Written questions—interrogatories—can be sent, documents can be requested, and Joe’s attorney can force Bob to show up and answer questions under oath. Ditto in reverse, and the “question under oath” process is called a deposition.

Eventually, a trial date will be set. Written motions may be filed about process issues, if necessary. Joe can also ask the court in writing to find that, even if everything Bob says is true, Joe must still win because the law, applied to Bob’s version of the facts, supports Joe’s claim. Ditto in reverse, again, and this process is called summary judgment. It can be a very effective tool, albeit one that gets expensive in complicated cases.

Trials are for another day. Let’s assume that, whether by judgment or at the trial, Joe prevails. He gets a judgment for the $50,000, plus any interest which may be due. (He may also get his attorney’s fees.) Now, there’s a piece of paper which requires Bob to pay Joe. Joe is happy, but he doesn’t have his $50K, the interest, or the money he paid his attorney.

Recall, also, that Bob was broke. Guess what? He claims he’s still broke. Joe can force him to show up and testify under oath about his assets and debts, and bring paperwork about his finances. (Supplemental proceedings is the term you’ll here, or a debtor’s exam.) Joe can also collect money from bank accounts, and can even take a portion of Bob’s wages, all through the garnishment process.) He can go forth for up to five years under Arizona law, and can renew the judgment every five years.

One other thing! Assuming no wrongdoing of a type set forth in the bankruptcy laws, Bob can file a bankruptcy petition and make the debt or judgment go away. Anytime, whether Joe has spent a little or a lot to try and collect money. (Bob’s non-exempt assets get distributed pro rata to his creditors, but if he’s really broke there will likely be nothing.)

The litigation process involves lots of time and money. It works well in many cases, but it’s not often a good cure for a set of bad decisions, like loaning $50,000 to a friend who has no money.

Today’s big takeaway? If a situation matters enough to warrant hiring an attorney when it goes wrong, you should have had an attorney at the outset.