Any enforcement action or strategy (even simply to correct drafting errors) must be considered not only in light of existing arrears but also in light of unpaid amounts that may foreseeably accrue in the future. Events that may impact those accruals include potential modifications, emancipations, remarriages, new children, retirement, acceleration clauses, offsetting obligations, rights to indemnification, etc. Also relevant to the mapping of any enforcement strategy is consideration of unintended consequences, the debtor’s collectability trend (present versus predictable future collectability), and the creditor’s immediate need for the money. Poorly timed enforcement can be penny wise and pound foolish for many reasons; once, for example, a particular enforcement remedy has been employed, rarely will it be effective if used again—the bank account will have closed, the property will have sold, etc.
The Standing Roadblock
Another variant of the garage door roadblock: standing, which is to say that the problem existed before the creditor ever left home and was constructed of the creditor’s own raw materials. Interestingly, creditor/plaintiff standing is scrutinized in most every new action but often ignored in post-judgment enforcement. As such, the standing roadblock is more akin to an unknown length of chain still attached from the car to a creditor’s garage: you shouldn’t drive with it and, at some point, it could (and should) result in a huge jolting. Stop!
Such standing issues can occur in a few scenarios. One, for example, is where a custodial parent has received cash aid pursuant to 42 U.S.C. § 601 et seq. (Temporary Assistance to Needy Families, or TANF, formerly known as Aid to Families with Dependent Children, or AFDC). Because the Title IV-D Child Support Program of the Social Security Act requires each recipient of cash aid to assign all rights of accrued support to the state, a support creditor receiving cash aid may no longer have standing to pursue any outstanding support obligation. Ultimately, the relationship between the creditor’s rights and the state’s rights will depend on the amounts and timing of aid received, installment accruals, and amounts paid. For the most part, all arrears accrued prior to and during the receipt of aid are assigned until all aid (and sometimes interest) is recouped. Similar roadblocks occur where enforcement was sought through assignment to a collection agency or judgment professional and that relationship ended without the creditor having received assignment back.
More common than one may think is the situation in which standing is lost because a support creditor seeking bankruptcy protection innocently omits disclosure of arrearages owed him or her at the time of his or her filing. Thus, as an undisclosed asset of the bankruptcy estate, the arrears may only be enforced by the trustee until the bankruptcy is reopened, schedules are amended, and the case is reclosed. Good intake procedures, reviews of every related case docket, and a Pacer account for bankruptcy searches are a good start to revealing such issues.
Death: A Roadblock? Maybe Not
The “roadblock” of death might cause a standing issue to arise, but it’s not necessarily the end of the enforcement road. Where the creditor dies with arrearages owed, the use of enforcement remedies may generally proceed by the creditor’s successor in interest, such as an executor, administrator, or trustee. Where necessary, ensure that any retainer agreement for representation by the estate is first approved for extraordinary fees or authority by the appropriate probate court. Where no other remaining assets or estate issues would otherwise necessitate the opening of a formal probate, consult local probate laws and counsel about utilizing testamentary letters that may be available under summary or small estate affidavit proceedings.
When arrears owed are an asset of a trust, the trust may seek the court’s recognition of the new successor in interest as to all matters that did not abate on the creditor’s death (methods vary by jurisdiction). A creditor’s successor in interest can avoid certain roadblocks if the creditor has engaged in careful estate planning and ensured that whatever arrears are owed are addressed. Debtors, of course, die too, and addressing that is simple: consult probate counsel. In most instances, upon the death of the debtor, the exercise of civil enforcement remedies ceases, and the creditor is left with options provided under governing probate laws, which are often limited to claim proceedings in the decedent’s estate. (Sometimes, liens may be pursued through execution if claims against the estate are waived.) Timing deadlines and strict requirements underscore the importance of familiarity in this nuanced area of the law.
Boundaries of the Road: Exemptions and Third-Party Rights
Generally, all property interests of the judgment debtor, except as exempted or protected by law, are subject to enforcement. However, as important as are our laws and policies requiring respect and compliance with court orders and judgments, even they must yield to the principle that affords everyone the right to maintain a basic modicum of financial or property ownership of certain assets or rights in which they are already vested. Thus, exemptions might better be seen as one of the defining boundaries of enforcement. When misused, they may be roadblocks worthy of our attention.
The statutes and practices regarding exemptions vary widely. All states have exemptions or protections as to certain property types, e.g., homesteads, vehicles, retirement, hearing aids, cemetery burial plots. Some states can include such property as pets, chickens, hogs, horses, bridles, saddles, and such. Equally important as knowing the range of property subject to exemptions is understanding how exemption amounts are determined. Some exemptions are expressed in terms of dollars (e.g. “$7,500 for the first vehicle”), and other times, a statute or case law may require the court to engage in a balancing test of needs, rendering a ruling that all, some, or none of the claimed asset is exempt from enforcement.
Some exemptions will expressly require consideration of certain debtor factors such age, health, dependents, and finances; others may require consideration of the creditor’s condition or the amount of arrears. Exemptions, limits, and methods of determination can be applied differently depending on whether the obligation being enforced is one for equalization, attorney fees, or support. A familiar example is the twenty-five percent limit (or seventy-five percent exemption) of net disposable earnings for nonsupport wage garnishments and the allowance of up to fifty or even sixty-five percent garnishment for support. While the burden of proof is often on the exemption claimant, hearing and evidentiary procedures, finality of rulings, and sometimes, rules of tracing are all designed to be liberally construed in favor of the exemption claimant—the debtor. (Some exemptions are so sacrosanct that no claim of exemption need be filed.)
Federal regulations can also throw the unsuspecting creditor into a tizzy by jeopardizing the levy itself and preempting otherwise applicable state law. 31 C.F.R. § 212 defines certain federal benefits (such as Social Security and Veterans Administration benefits) as protected and notably provides financial institutions in receipt of a levy or other process two business days to determine the amount of protected funds, if any. For concern that protected funds mightn’t be accessible to the account holder when needed, not until such determination is made do the CFRs allow a financial institution to restrain any portion of funds on account.
The other boundary of this road is delineated by third-party rights: where legitimate, they are an immovable mountain. The procedures, like many within the enforcement of judgment arena, can be highly technical, involve procedures and filings uncommon in family law, and may require timely and strategically planned bonding in tight coordination with the levying officer. Such judicial determinations can be forced to proceed without discovery in a summary fashion and with a res judicata effect. It’s important to remember that the boundaries of third-party rights are protected well beyond the body of law governing enforcement of judgments; third-party rights may be protected through other mechanisms and procedures such as, e.g., interpleader, declaratory relief, quiet title, and lien foreclosure proceedings, and they may occur in state, bankruptcy, and probate proceedings.
Property known to be exempt without making a claim or property known to be freely owned by a third party should never be the subject of a creditor’s enforcement action—for any debt.
Investigation and Mapping the Roadblocks
The sooner one can develop necessary facts, the sooner research, preparation, and implementation of an enforcement strategy can begin. Many roadblocks can be avoided by learning as much as ethically and legally possible about your debtor. Examples of searches and resources might include: the client’s personal knowledge; former counsel files; active or settled civil litigation (declarations, disclosures, judgments, transcripts); bankruptcy filings; secretary of state filings; county and real property; d.b.a.s; the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system; the U.S. Patent and Trademark Office; the Freedom of Information Act; satellite imagery; visual street maps; social media; state licensing boards; archived web pages; URL registrations; and the list goes on and on. In addition to the fantastic breadth of information publicly available with mere Internet access, a wealth of information may sometimes be obtained from secondary data providers, such as Lexis, WestLaw, or Microbilt, where data is culled from a variety of sources including credit headers, utility bills, voting and DMV records, and others.
The practice of locating streams of income and assets (and other actionable points of interest warranting more focus during formal discovery) is an art form and involves knowing which databases to query. The process of searching is like the peeling of an onion: there are always more layers to be uncovered. The process will require search threads such that every search result itself may become the next searched term. Every time a new address, new entity, new hobby, new partner, or new anything is discovered, the Google searches start anew, looking for direct and indirect associations, leads, or connections to our debtor. One must always be familiar with current laws (and ethics) relevant to privacy, consumer, and credit and collection issues, all of which are well beyond the scope of this article but too critical to ignore. Using a well-recommended licensed private investigator known to exercise only the highest degree of ethics is a must.
Avoid the Nails, Bumps, and Blind Spots
Enforcement actions generally fall into one of two categories: execution and nonexecution remedies.Execution remedies, generally based on a court-issued writ of execution, are the vehicle for most levies. Writs generally must be issued to the county wherein the levy is to be served.
Just as prior coordination with a courthouse clerk can do wonders when facing difficulties with issuance of writs, abstracts, and other administrative process, so too can a conversation with your local sheriff, marshal, or constable prior to sending levy instructions. In fact, you might find that your local levying officer will no longer serve a particular type of levy. That doesn’t mean you won’t still have to pay the fee; it just means you’ll have to find a registered process server (RPS) to serve the levy.
A bad process server is a roadblock in the making. Always be sure you have a clear understanding as to who will be preparing the necessary levy paperwork, whether sheriff fees are included, and how many “service attempts” will be made and at what intervals. Even where local levying officers continue to serve civil levies and other process, the use of a private process server, where permitted, can be very helpful and is sometimes essential. An RPS can help ensure that a levy is served on a particular date and time, exactly as specified. Know the limitations imposed by state and local law regarding RPS authority.
An all-too-familiar example of blind-spot-turned-roadblock is the lack of service by a creditor or counsel of a “wage garnishment” against a debtor’s closely held corporation. Typical reason: “He’s not paying the support, and he’s not going to garnish his own wages.” Exactly! And when that entity fails to comply with statutory garnishment laws, the entity will be subject to contempt and independent liability, and it may be headed toward a path of alter ego, reverse piercing, or some other relief untangling our debtor’s veil of protection.
Similarly, the simple yet powerful prophylactic of real property liens capable of attaching to after-acquired property is often in our blind spot and overlooked.
In some jurisdictions, discovery may provide the creditor an opportunity for questioning the debtor under oath; in others, that’s just the beginning. Not only can such examinations require the appearance of and testimony by the debtor, but, often by affidavit, a spouse, family member, business partner, or any witness that may have relevant knowledge can be called and questioned. Adding service on the witness of a subpoena for document production is often invaluable. Understanding post-judgment discovery is critical to avoiding missteps, which occur not just when creditors overlook powerful post-judgment discovery but when they misuse prejudgment discovery, unaware that it is often disallowed to enforce money judgments.
Unlike pretrial discovery, service of some examination orders can create a very effective lien against the debtor’s personal property in the possession or control of the witness; additionally, liens can lead to turnover orders.
While many states will not allow a turnover order to be issued against a third party by usual motion practice, some will allow issuance of a turnover order against a third-party witness appearing during the course of an examination proceeding. When having turnover orders issued, consider erring on the side of convenience to the witness, and remember that one remedy for failure to comply with the turnover order will be contempt. Thus, one should give careful consideration to the particulars and clarity when drafting the orders while also ensuring personal service after entry is effectuated.
These powerful resources—compelling answers under oath and ordering turnovers of personal property—should not be toyed with. Ask Mr. H. Beatty Chadwick, who, for fourteen years remained jailed on civil contempt while refusing the court’s order to turn over to the Pennsylvania court possession of $2.5 million alleged to be held offshore. Chadwick, still believed by the court to control the money, was ultimately released when the court determined that continued “imprisonment is no longer coercive” and instead had become “punitive,” as was evidenced by Chadwick’s continued refusal to comply, which was not likely to change.
Extra Lanes for Support
Income definitions under the Uniform Interstate Family Support Act (UIFSA) are broad; they extend far beyond traditional W-2 wages and can include payment streams such as those for independent contractors; interest; dividends; rents; royalties; residuals; patent rights; mineral or other natural resource rights; services or sales, whether denominated as wages, salary, commission, bonus, or otherwise; payments due for workers’ compensation temporary disability benefits, and more. UIFSA § 102(9)(Uni. Law. Comm'n 2008). This permits effective enforcement of support obligations against streams of income other than those from W-2 employees. Also of significant benefit is the fact that UIFSA requires that employers honor out-of-state wage assignments as if issued by a court within the employer’s state. UIFSA §§ 501–502.
ERISA, the Employee Retirement Income Security Act of 1974, not only provides that qualified domestic relations orders (QDROs) may be issued to divide the marital interest in a plan but it also provides that a QDRO may also be issued to invade the participant’s portion of the plan to pay provisions of support. 26 U.S.C. § 414(p)(1) (B). Federal elevation of domestic support obligations also finds special treatment at 42 U.S.C. § 659, where exceptions from garnishment of federal benefits, such as military retirement and Social Security, are made inapplicable to support creditors.
Certainly laws will vary greatly on this point, but many probate schemes provide express provisions allowing the trustee and/or court latitude in ordering the trust interest of a beneficiary to be applied in satisfaction of his or her support obligation, notwithstanding the settlor’s express spendthrift restrictions. Additionally, rare but not unheard of is the situation in which a trust settlor’s choice of law provision is judicially disregarded as impermissibly violative of fundamental public policy that otherwise promotes compliance with support obligations. Again, your mileage will vary.
One final example of an extra resource available to the support creditor in most states is one that actually transforms a boundary by providing the court an ability to invade fundamental debtor protections. Notwithstanding a debtor’s right to claim some or all of an asset as exempt (unless exempt without making a claim), courts are permitted to engage in a balancing test between the creditor, debtor, and dependents and determine how much, if any, of even an exempt asset “nevertheless shall be applied to the satisfaction of the judgment ....” See, e.g., Cal. Code of Civ. Proc. § 703.070(c).
Will You Reach the End of the Road or Your Destination?
After understanding the sensitivities of the family and the details of the family law case, a thorough review of the debtor’s life—what property interests, assets, court remedies, and discovery options exist; how each works; what process each utilizes; who does what in each process, when, and how (regardless as to who’s doing it)— is the best way to avoid roadblocks. Creditors need not always seize and execute in order to satisfy a judgment; they just need the debtor to want the judgment satisfied. The law can be thought of as providing resources to help creditors satisfy their judgments while helping debtors reprioritize what’s important. Our job is one of mapping the road ahead—and ethically traveling it with creativity, compassion, and dogged perseverance.