You won your court case and the judge signed an Order stating that the tenant owes you quite a bit of money. Break out that
expensive champagne and celebrate victory, because the tenant, now
known as the “judgment debtor”, is picking up the tab for the
festivities. NOT SO FAST!!!
Since the abolition of debtor’s
prison in 1833, most court orders commanding the payment of money, also
known as “money judgments”, are not enforced through the coercive power
of the court’s contempt authority. Rather, money judgments are enforced
by the plaintiff, now called the “judgment creditor”. The judgment
creditor may utilize court processes to collect the judgment, but the
court will not on its own initiative collect a judgment for the judgment
creditor.
Complicating the situation is that there is no
federal law governing the collection of judgments, nor is there a
unified database of judgments and collection information. It is
therefore no surprise that a May, 2001 article by Arlene Hirsch of the
Wall Street Journal’s Startup Journal reported that approximately 80% of money judgments in the United States go uncollected.
Collection law constitutes a vast field of legal doctrines arranged in
an amalgamation of (sometimes conflicting) state law about which most
lawyers know very little. Making matters worse is that most collection
proceedings are considered to be in “derogation of the common law”,
meaning that the procedural requirements must be strictly adhered to or
the proceeding is deemed to be a legal nullity. This concept, in and of
itself, is an interesting proposition as the common law method of
collecting a debt was to have the judgment debtor sent off to debtor’s
prison.
By way of introduction to the topic of legal
collections, there are typically four (4) major categories of collection
procedures to obtain satisfaction of a judgment: garnishment, debtor
interrogatories, actual levy and liens. The purpose of this post is to
provide a very general overview of each method. Of course, each method
has its own unique benefits and risks, so this post is not meant to
constitute legal advice. If you have questions regarding your rights,
you should contact an experienced collection attorney.
The lien
is probably the easiest collection method to understand, but it is
often the least effective and slowest to recover money. Nearly every
jurisdiction in the United States has a statute that either by operation
of law or through some relatively simple procedures transforms a money
judgment into a lien against the real or personal property of the
judgment debtor. A creditor can utilize these statutes to collect a
judgment from real estate by the following: find real property of the
judgment debtor, docket the judgment in the jurisdiction where the
property is located and wait until the debtor attempts to sell or
refinance the property. Most states require judgment liens to be
satisfied out of the proceeds of a sale of real property and the
judgment debtor is generally not able to refinance without paying off
judgment liens. On the other hand the judgment creditor can be more
aggressive and execute on the judgment by selling the real property, but
each jurisdiction has procedures that govern how to execute on the
judgment against real estate. Liens on personal property work in much
the same way, but are not usually as effective as liens on real estate
because of the easy transferability of personal property.
The actual levy,
in contrast to the lien, is probably the most difficult collection
method to successfully pursue. That said, it is sometimes the best (and
only) way to recover money. The actual levy is the means used by a
judgment creditor to seize the tangible assets of the judgment debtor,
including cash. In most states the actual levy is performed by the
sheriff, marshal or court security officer at the request of the
judgment creditor; the seizure involves the sheriff taking items of
personal property belonging to the judgment debtor and selling them in a
commercially reasonable manner. Many judgment creditors, after years
of squabbling and litigating against a judgment debtor take particular
satisfaction in having the sheriff take the judgment debtor’s car, farm
equipment or jewelry. In some circumstances, this is a very effective
method of satisfying a judgment, particularly if the judgment debtor
owns valuable jewelry or shares of stock. Many states, however, require
the judgment creditor to post a bond with the sheriff before the sheriff
will engage in a levy. The items seized at levy may also be
insufficient to satisfy the judgment after sale. Moreover, the
procedural requirements for a seizure can be considerable. In many
cases, the judgment debtor retains a bit of a trump card over the actual
levy through the use of statutory exemptions or bankruptcy. However,
if the judgment debtor’s only assets are stock or other tangible
personal property or if the judgment debtor maintains a considerable
inventory, the actual levy may be the best way to go. Seizure of the
cash from a retail establishment, known as a “till tap”, can realize
results, and make a statement to the judgment debtor.
Similar to the actual levy, but designed to reach intangible personal property is the garnishment
action. Different states have different names for this procedure, but
every state has a similar procedure that allows the judgment creditor to
intercept assets payable to the judgment debtor by third parties.
Customarily this is utilized to seize bank accounts or to intercept
wages, but can also be used to intercept rental receipts, contract
payments, proceeds from the sale of a business and any other item of
intangible personal property. This collection method, like the actual
levy, is subject to various statutory exemptions. However, in most
states, the garnishment procedure is far more straightforward than the
procedure for an actual levy. Moreover, a bond is usually unnecessary.
Debtor Interrogatories are
used to determine the location of the assets of the judgment debtor.
Some states have statutes authorizing the use of independent debtor
interrogatory proceedings where the judgment debtor is put under oath by
a judge and required to answer questions about the debtor’s assets,
income, expenses and financial situation. If those questions reveal
assets, then, in some circumstances, the judge is empowered to order
turnover of those assets to the judgment creditor under the pains and
penalties of contempt. Other states simply allow the judgment creditor
to conduct a deposition of the judgment debtor, but the judgment debtor
must determine how to seize such assets. The power of the debtor
interrogatories depends in large part upon what is authorized by state
statute. In addition to questioning the judgment debtor, the judgment
creditor can require the judgment debtor provide financial records, such
as bank account and brokerage statements.
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