The ABCs of Judgement Enforcement
Latanishia Watters is a senior associate in the Commercial Litigation Section of Haskell Slaughter Young & Rediker, LLC, in Birmingham, Alabama. She can be contacted at firstname.lastname@example.org
So you have a judgment. Now what? Best case scenario: you receive a check in the mail from the debtor and it clears the bank. For the problematic judgment enforcement case, there are several strategies for tracking down assets and collecting your judgment.
Where’s the money? There are several methods for determining not only what type of assets a debtor has, but where a debtor has hidden assets. The easiest method is to ask the debtor. Because you have a judgment, you have an advantage. Rule 69 of the Federal Rules of Civil Procedure allows a judgment creditor to serve discovery designed to ferret out information concerning assets of the debtor. Start with the debtor’s tax returns, bank records, and real estate records. Rule 37 may be used to compel the debtor to respond to the discovery requests. If the debtor continues to be uncooperative, notice the debtor’s deposition. This often gets the debtor’s attention, particularly when the debtor is represented by counsel. If all else fails, move for a contempt order. The threat of jail is a great motivator.
Another tool is to hire an investigator to locate assets of the debtor. An investigator can be particularly helpful for judgment debtors who abscond with assets. Hopefully, you have already consulted with your client and conducted a cost-benefit analysis of enforcing the judgment. The cost of collection of course should not exceed the judgment amount sought. If hiring an investigator is not an option, conduct your own search. Start first with your own client’s files concerning the debtor, such as credit applications and credit reports. Next, make use of low-cost databases that allow you to search for assets, including Westlaw and ChoicePoint.
Executing on the judgment. While there are prejudgment remedies available, this article deals exclusively with postjudgment enforcement. Your first step is to obtain a certificate of judgment from the issuing court clerk and record the judgment in the county where the debtor resides and/or owns property. Once recorded, the judgment becomes a lien on all of the debtor’s property in the location of the recordation. You should record the judgment in all locations where the debtor has property. Out-of-state judgments must be domesticated or registered in the state where the debtor or property is located. Depending on the type of judgment (federal v. state), this can be a simple process of paying a small fee and filling out a form. Registering state court judgments, however, oftentimes require additional steps, including seeking admission to practice pro hac vice. This process is made easier by states that have adopted the Uniform Enforcement of Foreign Judgments Act, which provides for the enrollment of judgments from sister states.
Garnishment. Rule 64 provides that garnishment is one of the methods available to seize property. Garnishment is appropriate when a third party is holding nonexempt money or personal property of the debtor. This property may include wages, debts, royalties, or any liability owed on a contract. Garnishments have certain restrictions. For example, wages that may be garnished are limited to 25 percent of the debtor’s disposable earnings. In addition, the debtor may elect exemptions under both state and federal laws. To initiate a garnishment, you must issue a writ of garnishment to the garnishee, as well as notice to the judgment debtor of the opportunity to be heard and claim exemptions.
Writ of execution against property. Generally, all nonexempt personal and real property that a debtor owns or has an interest in is subject to execution. The state where the property is located controls the type of property subject to execution and the manner of providing notice of execution. Before attempting to execute against property, determine what exemptions are applicable, particularly homestead exemptions, as well as any liens that may encumber the property. Your client’s lien is subject to any previously existing liens.
A writ of execution only encumbers specifically identified, tangible personal or real property. Some states also allow corporate stock to be reached by execution. Once initiated, the writ is served and the property is seized by the sheriff or U.S. marshal in the county where the property is located. Consult your state’s laws concerning other execution requirements. Alabama law in particular has specific procedures for sale upon execution, including the day of the week on which the property can be sold or auctioned, the publication of the notice in a newspaper, and where the notice must be posted at the courthouse.
Beware. Be aware of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, as well as applicable state laws. The FDCPA applies to the litigating activities of attorneys who regularly collect or attempt to collect consumer debts.
In addition to the applicable statutory provisions, beware of fraudulent transfers. Fraudulent transfers often precede the debtor’s downfall. These may include gifts or loans to spouses, relatives, and company insiders, as well as transfers or sales for inadequate consideration. These fraudulent transfers may be set aside and the assets recovered.
Practically speaking, one’s enforcement efforts should take into consideration the type of debtor (individual v. corporate), the amount of the judgment, the assets the debtor has or may have hidden, and, in the case of an individual, whether he or she can be located.