The Challenge of Judgment Collection
Debtors can avoid a creditor for a long time. Repeated, but failed, promises to pay, increasingly unbelievable excuses, and simply ignoring the creditor are all tactics debtors employ to delay collection. It can be remarkably frustrating. But, if a creditor is persistent, vindication will come in the form of a judgment. The tools available after a judgment is entered are the most powerful available to a debt collector.
However, many creditors, and even many attorneys, are unsure how to proceed after judgment is entered. Practical experience is invaluable, and legal specialization in collection is helpful.
The Law Offices of Gary A. Bemis is proud of the fact we represent other law firms who have gained Judgments for their clients for the purpose of collecting those Judgments. They select us because they know this is a specialty of our firm and we place a high priority on those cases.
Following is a brief description of some of the tools available to collect a judgment and when they are useful.
The Basics of Judgment Collection: Garnishment and Levies
If the debtor is an individual and has a job, a judgment creditor can serve the employer with an Earnings Withholding Order (“EWO”), requiring the employer to take a percentage of the debtor’s paycheck and send it directly to the creditor. Although this garnishment is subject to exemptions, it is the most direct means of collection.
If the judgment creditor has the debtor’s banking information, a levy can be served on the banking institution requiring the bank to turn over any and all funds held in the debtor’s name. The levy is only executed once, so there is some element of luck and strategy regarding when to submit a levy. Also, debtors may close the account or stop using it once it has been levied, so multiple levies on the same account may not yield consistent results.
These tools place remarkable pressure on the debtor, and, even if they are only moderately successful themselves, they can force the debtor to come to the table and make voluntary payments.
Judgment Debtor Examinations
As the judgment creditor, you have the right to force the debtor to come to court and answer questions, under oath, regarding the debtor’s finances. Now that you have a judgment, everything is on the table. You can ask about banking information, account numbers, customers and clients, current employment, and any other information that could turn up assets. If the debtor is unwise enough to bring an expensive car or jewelry to the examination, the court may order the property turned over at the hearing.
If the debtor fails to appear, the court will issue a bench warrant for the debtor’s arrest. When the debtor is arrested, he will be forced to post bail or stay in jail until the examination is held. The bail can be applied to the judgment, and the examination held as planned. The court will also order the judgment debtor to produce the documents and answer the questions, if the debtor refuses.
With the information obtained, it may be possible to garnish the debtor’s wages, levy a bank account, or engage in the more specialized collection practices described below.
Property Seizures and Sales
Once a judgment is entered, an Abstract of Judgment can be filed in any county where the debtor may own property. That filing creates a lien on the property in that county, and provides notice, so that if the debtor attempts to sell any property in the debtor’s name, the creditor is notified and can demand payment out of the escrow.
It may even be possible to foreclose on the lien and force the sale of the property. However, all senior lien holders have to be paid before the judgment creditor can take any of the proceeds. This means that the mortgage, and second mortgage, if any, must be paid first. If there are any other judgment liens, those will also be satisfied in the order they were recorded. Then any remaining proceeds are distributed to the remaining creditors, and if there are any further proceeds, they are returned to the debtor.
While this is a satisfying and dramatic way to collect a judgment, it is subject to the homestead exemption in California and other states, and also is only advisable if the debtor has a sizable piece of equity in the property. But even if the sale never transpires, the pressure placed on the debtor frequently leads to a voluntary payment arrangement.
Bringing Out the Big Guns: Till Taps and Receivers
If the debtor refuses to pay, but is operating a business, it is possible to do either a “till tap” or place a “keeper” at the business. This means that a Sheriff will either enter the business and take all of the money in the cash registers at one time, or the Sheriff will sit at the debtor’s business and literally take the money from the debtor’s clients as it comes in. The Sheriff has the ability to accept cash, checks, and even bank card transactions. Not only is this money turned over to the creditor after costs are paid, but it is embarrassing to have a Sheriff or other enforcement agent sitting in your business, taking money from your customers. Even if the debtor has a slow day, this will provide a remarkable incentive to pay the judgment.
If the judgment debtor has a possibly lucrative business, but is refusing to cooperate or claiming that the business is losing money, the entire business can be placed in receivership. California Code of Civil Procedure Section 708.620 provides that the court may appoint a receiver to collect the judgment. Section 708.620 only allows a receiver where it is reasonable, and where it is the interests of both the creditor and the debtor. There are no cases interpreting the statute, and the statute itself provides little guidance.
Receivership is a drastic and expensive remedy. The judgment creditor is responsible for all costs, although these can be collected from the judgment debtor, if the receiver is successful. The receiver will charge an hourly fee, and possibly other administrative fees for copying, telephone use, and mail. Locating a person who is qualified and willing to serve as a receiver is a challenge. This step is very difficult without experienced legal counsel, but can be very effective in the right case.
Conclusion
Judgment opens up an entirely new set of possibilities for a creditor. The ability to garnish wages and levy bank accounts is powerful, as are the more complex but damaging tools, such as a keeper or receivership. A good collection attorney making wise use of the available means can make the difference between a useless piece of paper, and receipt of funds.
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