Chapter 19

Collecting a Judgment

In This Chapter

Determining a postjudgment strategy

Using the courts to help you collect

Garnishing your debtor’s wages and accounts

Targeting assets to pursue

Concluding successful judgment collection

Alot of people believe that if you get a judgment from a court, your debtor must promptly pay you in full, and the matter is over and done with. In truth, the battle for collection probably isn’t over. And in many cases, it isn’t over by a long shot.

Though your judgment is a court order that spells out the amount of money the debtor owes your company, it’s not much more than that. Unless the judge enters a payment provision as part of the judgment, your judgment doesn’t require the debtor to pay off the debt by a certain date.

So then, what’s the point of obtaining a judgment? Why bother filing a lawsuit in the first place? How is having a judgment better than simply continuing with your normal collections process? Rest assured, when it comes to actually turning the debt into money, you gain some real advantages by having a judgment in hand. Although judgments don’t necessarily result in immediate collection without further action, they’re a significant step forward in the process.

Knowing the Basics for Turning a Judgment into Cash

Over the course of collecting accounts, you find debtors who pay the moment they receive your first letter or phone call, as well as debtors who won’t pay and who constantly test you to see how hard you’ll pursue the collection. If you have to get a judgment, you already know you’re not dealing with an easy case. If your debtor can afford to pay you but chooses not to pay (as opposed to a debtor who has little or no means to pay), she’ll probably avoid paying until no alternative remains. But from the time you obtain a judgment, you gain some real advantages over your debtor:

Judgments get placed on the debtor’s credit reports. A judgment is a public record that’s reported to credit bureaus such as Equifax, Experian, and TransUnion. An unpaid judgment is a significant black mark on your debtor’s credit record. It’s not as bad as bankruptcy, but it can seriously affect future extensions of credit from almost any creditor.

The statute of limitations is less of an issue. Every state allows you a period of years, usually six to ten, to collect a judgment. If you can’t collect the judgment during that period, most states permit you to renew a judgment one or more times.

The judgment accumulates interest at your state’s legal rate of interest. After you have a judgment, you can automatically add interest to the judgment debt. The amount of interest is set by law and is updated periodically (such as every six months). You can also add many of the costs associated with your efforts to collect the debt. You should be able to find out the judgment interest rate for your state from the court clerk, or possibly from the court’s Web site.

Your judgment is a legally enforceable court order. You gain access to a new set of postjudgment remedies, tools available through the court that can help you collect the judgment, including the right to compel the debtor to testify about his assets under oath and the ability to get court orders allowing you to seize or sell some of the debtor’s assets.

Having a judgment in and of itself isn’t enough to shake the money out of every debtor. But if your debtor has the capacity to pay, you can recover your money with some concerted effort.

Considering your postjudgment options

At this point, your debtor falls into one of the following three categories:

An eager payer: Now that you have a judgment in hand, your debtor wants to pay it off. This type of debtor is a rare bird, but he does exist.

A negotiator: The debtor wants to either make payments over time or pay you a percentage of the amount you’ve won in return for your filing a satisfaction of judgment (see the section “Filing a satisfaction of judgment and reporting to the credit bureau” later in the chapter).

A deadbeat: The debtor still won’t pay.

Sometimes a deadbeat will pretend to negotiate with you, to stall for time. If you enter into an agreement that involves payment over time, what happens if your debtor doesn’t make the payments? Our suggestion is to enter any payment plan as an order with the court and to include an acceleration clause, such that if a payment is late, the entire remaining balance becomes due. If the payment plan also includes a reduction of the judgment’s balance, we suggest including a clause that strips away that benefit if the debtor doesn’t make payments on time, so that the full amount of the original judgment (less any payments already received) becomes due.

We provide examples of these clauses on your CD. Check out Form 19-5.

Watch out for a debtor who tries to entice you to set aside your hard-earned judgment in exchange for a promissory note or similar written promise to pay the balance. She may provide good reasons, such as telling you that your judgment hurts her ability to obtain new credit, which, in turn, limits her ability to pay you. No matter how logical the plea, the debtor’s true intention is to disarm you (removing the judgment you already have and substituting a new agreement for it), and to continue to avoid paying you. Don’t fall for it. After all, if she really intended to set up payments, she would have done it earlier — before judgment was entered, or during negotiations before you even filed your lawsuit.

If you’re still reading, it’s safe to say you have a judgment debtor who isn’t cooperating — the infamous deadbeat. The rest of this chapter explains how you can use your judgment to squeeze money out of intransigent debtors.

Finding the debtor’s assets

When your debtor isn’t paying, you need to pursue his assets to collect your judgment. After you have a list of his assets, you can proceed with strong collection actions, including garnishment and execution (seizure and sale of a defendant’s assets). Start building your list by scouring your collections file for information you already have about the debtor, including

Home and business addresses.

Bank references.

Information about significant assets, such as real estate, vehicles, and watercraft.

Place of employment (if the debtor is an individual).

Your debtor’s customers, or other people or entities who may owe money to the debtor, including

• Accounts receivable

• Tenants who may owe rent

• Insurance companies who may owe money for claims, such as any fire damage or flood losses

• State taxing authorities who may owe a tax refund (if permitted in your state; federal tax refunds are off limits)

• Purchasers of your debtor’s business who may still owe money on the purchase price

Include in your list anything that appears to be a possible source of money. Check out Chapter 12 for more about finding assets and hiring somebody to help you locate assets.

If you can identify enough assets to make you reasonably sure you’ll be able to collect the money owed to you, great! If not, consider scheduling a creditor’s examination. See the discussion later in the chapter in the section “Conducting a creditor’s examination: Asking the right questions.”

Utilizing Court Procedures after Judgment

Until you’ve tried to collect a few judgments, the process of turning your judgment into cash can seem confounding. Fortunately, you can get help from court personnel and take advantage of collection tools that help you squeeze money out of your debtor.

The name of your debtor on the judgment is the name you must use on all subsequent legal papers associated with your collection. You can’t change the name on the judgment without a court order. If you discover that you made an error — like suing “John Smith individually and d/b/a (doing business as) John’s Bike Shop” when the debtor’s last name should have been spelled “Smythe” — you must go back to court to have the judgment amended. You shouldn’t identify “John Smythe” as a judgment debtor unless and until the court grants your motion for correction. You’d rather have the court on your side than have a judge smoking mad at you for making an unauthorized change.

We provide a sample motion to correct mistakes made on a judgment as Form 16-24 on the CD that accompanies this book.

Collection tools available through the courts

After the ink is dry on your judgment — or, more technically, when the time for appeal has passed and the judgment becomes final and enforceable — unless your debtor has written you a check, it’s time to explore postjudgment remedies. A variety of tools are available through the court to help you collect your judgment, including

Garnishment: A court order to take the debtor’s wages or cash assets. Garnishments can be an extremely effective tool for recovering money. (See the “Grabbing Cash: Effective Use of Garnishments” section later in the chapter.)

Writs to seize assets: Court orders permitting you to seize some of the defendant’s possessions to sell in satisfaction of the debt. This is also called execution against assets. We detail this technique later in the “Seizing the Debtor’s Assets” section.

Judgment liens: Depending on the laws of your state and the nature of the debt, you have the right to impose a lien against the defendant’s assets and to recover money if the assets change hands (or, in some cases, recover through foreclosure). Some states permit judgment liens only against real estate, and others permit them against both real estate and personal property. We discuss liens in more detail in Chapter 3.

Examinations for assets under oath: The right to take sworn testimony from the debtor about her assets and where they’re located. (See the “Conducting a creditor’s examination: Asking the right questions” section later in the chapter.)

Receivership: A receiver is a person appointed by the court to take control of the debtor’s personal or business assets and to liquidate or preserve them for your benefit. We address the significant benefits (and costs) of receivership in the “Using a Receiver to Enforce Collection” section later in the chapter.

Charging orders: If your debtor is in business with others — in a partnership, for example — a charging order creates a lien on the debtor’s interest in the business.

When you’re selecting tools for collecting a judgment, you’re not limited to just one. You may, for example, try a garnishment first, and then, if the garnishment is unsuccessful, you may proceed with a writ to seize assets, followed by a request for a receivership, and so on, until you’ve exhausted your remedies or collected your judgment. Some courts allow you to employ two or more judgment collection tools at the same time. For example, you may get orders permitting you to simultaneously garnish the debtor’s bank accounts and accounts receivable while also attempting an execution against assets, such as a car or business equipment.

If you decide to go in several directions at the same time (such as two simultaneous garnishments, or a simultaneous garnishment and execution), make sure you don’t overcollect the judgment. For example, if your judgment is $5,000, your simultaneous garnishments of the debtor’s business and personal bank accounts may net you a total of $10,000 — $5,000 from each account. You can bet the debtor will run screaming to the court should you accidentally overcollect. The best way to show the court that you didn’t intend to overcollect on a judgment is to immediately release the extra funds (any amount in excess of the value of the judgment, interest, and court costs awarded to you) back to the debtor. Overcollecting a judgment is unethical and can potentially violate state and federal laws, including the Fair Debt Collection Practices Act.

Many courts offer forms to help you with postjudgment collections, including form petitions for garnishment of wages or bank accounts. We also provide forms for creating judgment liens (Form 19-6), writs to seize property (Form 19-1), and garnishment (Form 19-2) on the CD accompanying this book. You may also be able to obtain the assistance of court officers or sheriff’s deputies in enforcing these remedies — but be sure to ask about their fees.

The court’s role in the collection process

Early in the litigation process, you probably saw the sign at the court clerk’s office stating that civil clerks aren’t allowed to provide legal advice. Whether a sign is posted or not, that’s typically the case. But civil clerks can be helpful to you in other ways.

If your judgment is in small claims court, ask the clerk about the availability of special enforcement forms, procedures, or brochures that provide judgment collection tips. Many small claims courts recognize that small claims litigants are often confused by the process, and they’ve developed special enforcement procedures to help people out.

Small claims courts don’t allow representation by an attorney, even after the judgment has been rendered. Small claims court is a do-it-yourself court.

The judge also has a role in the collection process. Examples of actions a judge may take include:

Deciding motions: You may ask the court to issue orders to help you collect a judgment, such as by appointing a receiver or by addressing special issues that arise in your case. The judge has the discretion to enter orders to assist in the enforcement of debt collection. For example, if your debtor runs a flower shop, you may find yourself filing a special motion for a quick sale of its flowers before they perish.

Overseeing creditor’s examinations: The judge is usually involved if you conduct a creditor’s examination (see the next section), especially if the debtor fails to appear and the judge needs to make a determination on what steps to take next.

Addressing your mistakes: The judge is also involved, and not in a good way, should you violate the debtor’s rights by making a serious mistake, such as overcollecting on the judgment.

Other court personnel who can provide assistance in the collection process include court officers or deputy sheriffs from the civil division of the sheriff’s office. These officers are available to enforce a writ of execution against the defendant’s assets.

Before issuing an execution writ, contact the civil clerk to determine whether the officer’s name must be placed on the order, and if so, obtain the name of an appropriate court officer to be assigned that task.

These same court officers or deputy sheriffs may also become involved if you need to process a garnishment. Typically, a court officer or deputy sheriff serves the order of garnishment on the debtor’s employer, bank, or whoever else you’ve named to receive the garnishment.

If you’re going it alone, such as enforcing your own small claims judgments, consider talking to a local collection attorney for ideas on effective post-judgment actions, as well as what collection attorneys do in that specific court to maximize their odds of successful collection. If you have multiple judgments out of the same court, buying 30 minutes of an experienced attorney’s time may be well worth it. Discovering a few tips or tricks of the trade can potentially save you time and help you recover more money.

Conducting a creditor’s examination: Asking the right questions

A creditor’s exam, sometimes called a debtor’s exam, is the most effective way to accumulate information about your debtor’s assets. That knowledge helps you find the easiest sources of cash or property for collection and helps you select the best postjudgment remedies to recover the money owed to you.

Creditor’s exams usually occur in court, with the judge overseeing the proceeding. Sometimes a creditor’s exam is conducted as a deposition, without the judge’s presence, although that approach is more difficult for non-lawyers. You can (and should) take careful notes of the information you obtain through the creditor’s exam, writing down account numbers very carefully. You need correct information if you pursue those assets to satisfy the debt.

For creditor’s exams held in court, a court reporter is normally present to transcribe proceedings, but check with the court because some courts may require you to arrange in advance for a court reporter to be present. If you conduct your creditor’s exam as a deposition, you are responsible for arranging for a court reporter. You can purchase a transcript of a creditor’s exam from the court reporter, but that’s an additional expense and you may have to wait weeks or even months for the transcript to be completed.

To conduct an effective creditor’s examination, follow these steps:

1. Issue a subpoena to the debtor.

A subpoena is a court order compelling the debtor to attend the examination at a specific date and time, usually right at the courthouse. The court may have a specific form you must use for the subpoena.

If the court doesn’t require a standard subpoena form, we provide a sample subpoena as Form 19-4 on the CD that accompanies this book.

2. Review your collection file.

Review all information you already have about the debtor and his assets, including financial statements, operating statements, credit reports, credit applications, and any other reports and letters that may verify addresses, phone numbers, and exact spelling of names, plus any notes you’ve made regarding the debtor, along with anything else that’s in your collection file.

3. Prepare questions for the debtor.

Use the information you’ve accumulated to prepare lines of questioning for the debtor about his assets. Take a copy of your list of questions to the creditor’s exam and keep it in front of you when questioning the debtor. Conducting a creditor’s exam can be intimidating, particularly the first few times, and having a list of questions can help you stay focused — but don’t limit yourself to your prepared questions. For example, a debtor’s answers to questions about his hobbies or collections may warrant a more specific line of questions about coin collections, stamp collections, special tools for woodworking, and so forth.

Make sure your questions are appropriate for your debtor:

If your debtor is personally liable for the amount owed, you can ask questions about the debtor’s Social Security number, driver’s license number, place of employment, personal hobbies, assets kept at home, and so forth. Individual liability usually arises with individual debtors, sole proprietorships, and partnerships, or through personal guaranties (we discuss individual liability in Chapter 2).

If the debtor is a business entity such as “Jones Corporation,” and no one has personal liability for the debt, focus your questions on the business assets, including

• Bank accounts

• Accounts receivable (all persons or companies who may owe your debtor money)

• Fixtures and equipment

• Work–in-progress inventory

• Office equipment

• Computers

• Vehicles

• Affiliated businesses, parent companies, subsidiary companies, and the like

We provide a template on the CD that includes many questions to ask at a creditor’s exam (Form 19-3). Make a copy of Form 19-3, use it to help you formulate questions appropriate for your specific debtor, and bring it with you when you conduct the exam.

Grabbing Cash: Effective Use of Garnishments

Garnishments attach property in the hands of third parties such as banks, customers who owe money to your debtor (accounts receivable), and other persons or companies who hold assets or potentially owe money to your debtor. Garnishment orders require those persons or legal entities to hold onto assets owed to or belonging to the debtor until those assets are either turned over to you or released by an order of the court.

In order to collect against your judgment debtor (the defendant), you as the judgment creditor (plaintiff) have the right to file an affidavit and writ of garnishment (the court document authorizing the garnishment) against a garnishee (a third party that you’ve identified as holding the defendant’s assets). The garnishment is issued by the clerk, then served upon the garnishee (formally delivered to the garnishee, usually by a court officer or deputy sheriff). The garnishee must then respond with a disclosure (written notification of money or property that she holds, which is owed or belongs to your judgment debtor). The amount of time the garnishee has to disclose is set by the court and varies from state to state, but it’s usually about six days.

Figuring out who or what to garnish

Review the information you’ve accumulated about your debtor to identify assets held by third parties. These are your targets for garnishment. Common examples include:

Bank accounts: If the judgment debtor has a bank account, garnish it. Bank garnishments are usually very effective at getting a debtor’s attention. Garnish your debtor’s payroll account on payday and you’ll see what we mean.

If a bank garnishment is successful but your judgment still has a balance due, issue a new garnishment on the same bank. Although you may think your debtor won’t make any more deposits into that account, it’s been surprising to us just how many debtors continue to deposit funds into their bank accounts, even after a successful first garnishment!

Accounts receivable: If your debtor has customers who owe him money and you can determine who those customers are, garnish them. For example, if your debtor is a tooling company that provides tooling for an automaker, garnish the automaker.

Wages: If your debtor is an individual, consider garnishing her wages through her employer. Although federal law limits your recovery to 25 percent of your debtor’s net take-home pay (with other restrictions if your debtor is earning minimum wage or less), and some states have lower limits or don’t permit wage garnishment at all, wage garnishments are among the most effective ways to collect money from an individual debtor.

You may be able to determine your debtor’s employer from her credit report. If not, you can find out by conducting a creditor’s examination. Special forms may be required to effect a wage garnishment, and you should check with the court for standard forms.

State tax refunds: Some states allow garnishment of state tax refunds. Generally, you must use special forms for this process. The forms include instructions on how to complete them and file them with the court.

The civil clerk at the court may help you select the proper garnishment forms (if the court uses more than one form). Simply tell the clerk that you want a form to garnish a certain type of asset such as wages or a bank account, and see if one’s available.

Some states severely restrict wage garnishments. In Florida, for example, heads of households are excluded entirely from wage garnishments. Texas almost never permits wage garnishments. You can find a summary of state garnishment restrictions on the BCS Alliance Web site (www.bcsalliance.com). Under the heading “Handling Debt Collectors,” click “Wage Garnishment State Laws.”

Determining when to garnish

Timing, as they say, is everything, and you should try to time the service of a garnishment to maximize the chances of recovering money. For example:

If your debtor is a commercial business, a bank garnishment will be more successful if you serve it against the debtor’s payroll account on days when the company issues payroll checks. Obtain that information at a creditor’s exam, or, if you prefer to make an educated guess, serve the garnishment on a Friday or on the first or fifteenth day of any month.

If your debtor tends to pay his bills at a specific time of month, try to serve a garnishment on your debtor’s bank as the cash is being built up to pay his bills.

If your debtor is an individual, garnishing a bank account on payday improves your chances of recovering money, particularly if your debtor has paychecks directly deposited into her account.

You can time other forms of garnishment so that they’re likely to be most effective. For example, tax garnishments are usually most successful from November through April.

Garnishment priorities: Other creditors competing for the same funds

Particularly when you’re talking about a judgment debtor, it’s a rare debtor who’s delinquent with just one creditor. You’re likely competing with other creditors who may also have judgments against your debtor. Those creditors are essentially in competition with you to collect, and some of them have priority — the right to be paid first. For example:

Child support claims normally have priority over other wage garnishment orders. You may be blocked from utilizing wage garnishment until your debtor’s alimony and child support debts are paid off.

Certain tax liens have priority over your garnishments, and thus may block successful garnishment.

Other creditors may have placed garnishments ahead of you. Because wage garnishments are limited to 25 percent of the debtor’s net take-home pay, a prior wage garnishment may have the effect of blocking yours.

When the debtor also owes money to her own bank, through an offset the bank can apply any money it holds on deposit to the debtor’s delinquent loan balance. Banks have priority in those funds by virtue of their contracts with their customers.

Taxing authorities, whether local, state, or federal, have a nasty habit of latching onto funds you attempt to garnish. Unfortunately, their claims to the funds generally have priority over yours.

For public policy reasons, some funds held by third parties are exempt (can’t be taken) from garnishment under any circumstances. For example, Individual Retirement Accounts, pensions, trust accounts, and federal tax refunds are off limits. Although technically these third parties aren’t competing creditors, the result is the same.

If you find yourself edged out by a creditor whose claim has priority over yours, consider waiting several months and trying again. You may find that some of the priority claims have been satisfied. For example, if a tax lien prevented your recovery the first time around, a few months later you may discover that lien has been paid and no longer stands in your way.

Issuing multiple garnishments at the same time

Unless the court where the judgment was entered has a limitation, you may seek multiple garnishments against the same debtor. For example, you know where the debtor works and where he has a savings account, so you issue both a wage garnishment and a bank garnishment at the same time.

You don’t want to over-garnish a defendant, and you can get into trouble if you collect more than you’re owed. If the combined garnishments have the effect of overcollecting the account, file a garnishment release form with the court and provide a copy to each garnishee.

It’s also possible to accidentally attach funds that really don’t belong to your debtor or only partially belong to her (such as money in a joint bank account), and as a result you may be required to release part or all of the funds to their actual owner.

Your court may have a standard garnishment release form. If not, you may use the garnishment release form we provide on your CD as Form 19-2.

When using garnishments, it’s helpful to have someone who’s very familiar with the garnishment process available to answer your questions in case of a problem or complication. For example, if your debtor files for bankruptcy, requests installment payments through the court, or ends up in receivership, you may have to stop your garnishment actions. Your failure to promptly stop a garnishment as required by law or court order can constitute a serious violation of the law, potentially subjecting you to fines, contempt citations, or even a lawsuit.

Seizing the Debtor’s Assets

If you know about your debtor’s assets, such as inventory, equipment, vehicles, watercraft, or other personal or real property, you may ask the court to issue a writ to attach property, sometimes referred to as a writ of execution or a writ to seize property. (Courts use all sorts of jargon on their forms.)

This section walks you through the basic process, provides tips on working with a court officer or deputy sheriff, and helps you form a successful (and legal) strategy for seizing a debtor’s property.

Most states require that you use writs to attach property against personal property first and against real property second. That means your officer must levy against items such as cars and boats before taking real estate. Also, certain types of property are exempt from execution (can’t be used to satisfy your judgment). For example, certain types of real estate ownership, such as husband/wife ownership “by the entirety,” typically prevent attachment unless your judgment is against both the husband and wife.

How the process works

You complete a writ to seize property, the court formally issues the writ, and the writ is then given to a court officer or deputy sheriff. After that, the following happens:

The officer either contacts the debtor to see if the judgment can be paid without the need of a levy on assets, or the officer levies on assets to impress upon the debtor the importance of paying the judgment.

If the officer levies on the debtor’s assets, the assets are transported to another location for safe storage for a minimum of ten days. If many items are seized, such as the inventory of a place of business, the officer must inventory them and organize them for sale.

During the time the items are held in storage, the debtor may redeem the assets (get the assets back by paying the full judgment, plus expenses and accumulated interest).

If the debtor fails to redeem the assets, the levied items are sold at a posted, public auction. The exact manner of sale varies according to factors such as state law and the type of assets seized. The officer must make a genuine effort to obtain a reasonable price for the items sold.

If the levied items are sold, the officer pays all costs and expenses associated with the sale out of the proceeds, including the officer’s own fees as prescribed by law, and then remits the remaining proceeds to you as the judgment creditor.

Working with a court officer

Think of you and your officer as a team. Throughout the process of execution, the officer relies on you for information on assets, and you rely on the officer to act on the information you provide. Although your officer is trained in the process of attaching assets, it’s not his job to investigate your debtor — that’s your job. You need to make sure that the assets you intend to have seized are covered by the writ of execution, and you should provide your officer with a list of assets that he can potentially recover. Include the list in a cover letter you send to the officer along with the writ, or attach the list directly to the copy of the writ.

How do you find an officer to act on your writ? Some courts keep lists of deputy sheriffs or court officers who work on writs. How do you know who to pick? Ask around: Consult other creditors you know who’ve used this process, or ask the professionals you work with for suggestions. Some officers are better than others, or at least are easier to work with.

Unless the debtor pays the officer’s fees as part of a settlement, or the fees are fully paid from the proceeds of the sale, your company remains on the hook for any investigative fees, costs, and expenses of the officer, as well as the cost of storage and sale. That can add up to a lot of money, even if the debtor agrees to pay the moment your officer knocks on the door. Similarly, if your debtor files for bankruptcy protection at any point during the execution process, the levied items must be returned to the debtor (or the bankruptcy trustee) under bankruptcy law, but you still have to pay the officer’s bill.

Be practical. Avoid spending more on the execution process than you’re going to get out of it. For example, you could spend a ton of money picking up, storing, and selling an older vehicle of the debtor’s just to get a small amount of money at the sale — far less than the costs you incur. Always consider the net recovery you’re likely to get.

Strategies for successful seizures

Given the cost of execution and the chance of being stuck with the bill, it makes sense to have a solid plan in mind before you initiate the process. First and foremost, you want to be sure that your debtor has enough assets to cover the cost of this process, and ideally, to also cover most or all of the amount owed on the judgment.

Start by gathering accurate and specific information that a court officer or deputy sheriff can use by

1. Creating a list of assets owned by your debtor.

2. Double-checking your files to make sure the information on your list is accurate.

You’re not exactly Santa Claus, but you should still be making a list and checking it twice.

3. Preparing a cover letter containing that information for the benefit of your officer.

Provide addresses, serial numbers, and other specific information about the assets (such as a complete legal description of real estate), giving your officer as much detail as possible. It may help to include information about your last payment received or most recent communication with the debtor.

When you have your list, you have many factors to consider that can potentially weigh against proceeding with execution. Possible concerns include:

How the property is owned. For example:

• If property is owned by more than one person, you may only be entitled to a portion of the value of it, or nothing at all.

• If your debtor leases the property rather than owns it, a writ of attachment won’t be effective.

Tax liens and secured creditors. Prior lien holders have priority over the assets you seize, meaning they must be paid first out of the sale proceeds (and you may have to notify them of court proceedings involving the asset.)

Special rules may apply. For example, restrictions apply to execution against the assets of cities, townships, school districts, and states. Special restrictions also limit your attaching firearms and certain other types of assets.

Practical considerations. It costs money to pick up assets, store them, tow them, and sell them. Avoid spending more on the process than what you’re going to get out of it, because you’ll get stuck with the bill.

You must consider liens when deciding what assets to pursue. As with garnishments, creditors with priority get paid first. For example, your debtor may own a Harley-Davidson motorcycle in her name, but it may be subject to a lien for the purchase price. If your debtor purchased it for $25,000 and it’s now worth $10,000, you don’t want to pick it up under a writ if your debtor still owes $12,000 to the lender. On the other hand, if the loan is paid off or only a small balance is due, the debtor has enough equity in the motorcycle to make it worth picking up.

The court officer or deputy sheriff you work with may have access to a network that can confirm whether other creditors hold liens on the property you’re about to seize. Use that information when determining which assets to pursue. But be careful — sometimes the information in those databases is inaccurate or out-of-date.

Although your officer must try to obtain a reasonable price for goods sold, an auction may nonetheless result in fire sale prices. For example, household goods and furnishings may only sell for five to ten cents on the dollar. Don’t make the decision to execute based on retail prices. You need a realistic understanding of how much a debtor’s assets are worth at auction.

Using a Receiver to Enforce Collection

A receiver, sometimes known as a keeper, is appointed by a court to take control over a debtor’s assets, or even to take control of a business. A receiver is usually a court officer, deputy sheriff, or even an attorney experienced in debt collection. The receiver’s authority is granted by the court in an order of receivership that typically includes powers of

Requiring the debtor to provide all financial records.

Requiring the debtor to submit to an examination, such as a creditor’s examination, to determine what assets are available to enforce collection of the judgment.

Requiring the debtor to turn over all assets, personal and real.

Receiverships are costly, so as a practical matter you only request the appointment of a receiver for cases involving large judgments. The precise powers a court may grant a receiver vary from state to state.

If you’re interested in having a receiver appointed, consult a collections professional. Most likely, this isn’t a do-it-yourself project, and you want the court to appoint a professional receiver.

You want to use a good receiver. It’s kind of like selecting a court officer or deputy sheriff: Their reputations precede them. Ask around to find an experienced receiver who has a reputation for doing a good job enforcing judgments. Although the judge has the discretion to appoint the receiver, she may accept your well-considered recommendation.

The CD accompanying this book includes a template for a motion to appoint a receiver (Form 19-7) and an order of receivership (Form 19-8). Keep in mind that these forms are generic and aren’t specific to your court. Your court may require that motions and orders be more finely tuned to what your judge expects, and the court may have standard forms you can use. In most cases you benefit from having a collections professional assist you with this process rather than trying to do it yourself.

Wrapping Up the Collection of a Judgment

A judgment is successfully collected when you recover sufficient money from the debtor to cover the judgment balance, including any recoverable costs and accumulated interest. Sometimes you may choose to settle the judgment for less than the full amount due. If the debtor pays the agreed amount pursuant to the settlement agreement, you must take the same steps as you would if the judgment had been paid in full.

Accounting for money collected under a judgment

You must keep accurate records of all money paid by the debtor on the judgment. The breakdown of how the money is applied to the debt must be clear and precise, including

What amounts are applied to court costs or interest

What funds are used for reduction of the judgment principal

What funds are applied to other costs and fees you’re entitled to recover

The court is entitled to know what you’re doing with the money you recover. If your accounts contain discrepancies, you’ll be called on the carpet in front of the judge to explain them.

If you’re not certain about what costs and charges can be levied against the debtor, you may consult with a collections professional or even file a motion with the court to determine the balance owed. The judge and the court clerks, while very concerned about any possible overcollection of the judgment, won’t act as accountants and won’t assist you any more than they have to in order to determine the balance owed.

Filing a satisfaction of judgment and reporting to the credit bureau

After a judgment is paid, you’re required to file a satisfaction of judgment (a written notice indicating that the judgment is paid), which has the effect of closing out the court case and assures the debtor that no balance remains due on the judgment. Among the steps you may have to take:

If you filed any special liens, such as judgment liens, check with the civil clerk of the court where you entered the judgment to see if the court uses special forms you must file to release those liens.

If any garnishments remain pending, you may have to file garnishment releases (use Form 19-2 from the CD, or use a court form approved for that purpose).

If you reported your judgment to a credit bureau, you must also report that the judgment has been paid. If the court made the report to the credit bureau, your filing of a satisfaction of judgment satisfies that requirement.

Before you close your file, look it over one more time to make sure that you did in fact file a satisfaction of judgment and release any liens, garnishments, or other property you attached along the way. It’s much better to catch a mistake early than to have the debtor call you six months from now screaming about a lien that’s still showing up at his bank or a judgment that still shows up as unpaid on his credit report. Your mistake may even violate state law or the Federal Fair Debt Collection Practices Act, potentially giving your debtor a claim against you. It behooves you to make sure everything is released before closing your file.

A template of a satisfaction of judgment is on your CD as Form 19-9. However, almost all courts have a standard form you should use to record satisfaction of a judgment.