Post Judgment Collection Methods




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Post Judgment Collection Methods

            Once a party prevails in a lawsuit and obtains a monetary judgment, the next step is to collect that judgment. While it would be nice if judgment debtors simply wrote checks to cover judgments the day that they were entered, real life does not often work that way. In a different presentation, we discussed the steps that are advisable after obtaining a judgment together information and determine whether collection activities make sense. In this presentation, we will look at some specific methods that are available once the decision has been made to pursue collections.

Settlement

            These formal collection methods may be necessary once it becomes apparent that the judgment debtor will not or cannot pay the judgment. An alternative that is always open to the creditor is to try to negotiate a settlement that allows the debtor to pay less than the full judgment. Giving the judgment debtor a discount to ensure payment may save resources in the long run. Moreover, the debtor and creditor may be able to agree on an installment plan to pay off the debt, or the debtor can be encouraged to seek other forms of financial assistance such as a loan to pay off the debt.[1]          

Wage Garnishment 

The most familiar method of post judgment collection is wage garnishment.  Wage garnishment is a legal procedure in which a judge orders an employer to withhold a portion of the debtor’s earnings and then use that portion to pay back the judgment creditor.[2]  Under this method, each paycheck a debtor earns helps to pay back the debt owed under the judgment, protecting the creditor’s interests while protecting the rights of the debtor against overly burdensome collection actions.

Wage garnishments are subject to limitations under Title III of the Consumer Credit Protection Act, which dictates that the amount that may be garnished cannot exceed the lesser of twenty-five percent of the employee’s disposable earnings or the amount by which those earnings are greater than thirty times the federal minimum wage.[3]  Disposable earnings are the amounts left after social security and income taxes are withheld.  This limitation on the amount that can be garnished, however, may not apply to certain types of debt, however, such as child or spousal support, federal tax debt, and student loans subject to collection by the United States Department of Education.[4]  These exceptions may grant a creditor a larger portion of the debtor’s disposable earnings. 

However, garnishment may not be effective in all situations.  It may take a great deal of time to pay back a high-value judgment on a low income.  Garnishment is even less effective when the debtor is unemployed.  If there is no income on which to collect, a garnishment yields no rewards, as any portion of zero is inevitably zero.  In that case, a judgment creditor must turn to other alternatives.

Judgment Lien

A second method of debt collection is the judgment lien, which allows the judgment creditor to attach the debt to real property owned by the debtor within the territorial jurisdiction in which the judgment was obtained.[5]  Once the lien is attached, it will prevent a judgment debtor from selling the property without first satisfying the unpaid judgment.  State law governs both the method and duration of judgment liens, and judgment liens may need to be renewed before expiration. A downside to this method of collection is that it may take a long time to collect on a judgment lien, as the property must first be transferred. A judgment creditor cannot foreclose on the property. He may only collect his debt out of the proceeds of the sale of the property. If the owner chooses not to sell or transfer the property for twenty years, no money will be collected during that time.  

While this method often takes longer to collect on a debt, in most states, statutory interest accrues the entire time the debt is unpaid.[6]  In this way the judgment creditor’s rights are at least somewhat protected from purposeful delay by the imposition of increasing debt upon the judgment debtor.  This increased debt acts as a deterrent against purposeful avoidance of the judgment lien as, when the property is eventually sold, the debt will be repaid with interest from the date of the judgment.

Levy

A far less common technique to collect on a judgment is a levy.  In a levy, a local sheriff is instructed to seize certain of the judgment debtor’s personal property (such as a car, jewelry, television, etc.)  the personal property is then sold and the proceeds of the sale can be used to pay the debtor’s judgment. The sale is typically done by public auction, following which the local sheriff pays the costs of conducting the auction and uses the remaining proceeds from the sale to pay the debt.[7]  Levies are not permissible in every case, and are usually subject to very strict guidelines such as specific notice requirements, broadly defined exempt property that cannot be levied, auction guidelines and differing state laws as to seizure of property.[8]

Contempt of Court

            The days of Dickensian “debtor’s prisons” where in people (such as Pip in Great Expectations) are imprisoned for failing to pay a debt, are long over. Still, debtors can be sent to prison for failure to abide by a court order. This is common in the case of failure to pay child support, wherein contempt actions are used to imprison parents who fail to pay court-ordered child support. In 2011, the Supreme Court reaffirmed the constitutionality of this practice, though it required that states provide certain safeguards to ensure that people are not imprisoned wrongfully on these grounds. [9]

            Failure to make payments in other types of cases where the defendant is clearly able to pay but chooses not to can also theoretically lead to contempt of court charges. This is exceedingly rare, though. Contempt of court charges in cases involving ordinary civil debts do more frequently occur where the defendant ignores court orders to turn over documents, answer questions or appear for debtor’s examinations or lie under questioning regarding assets or income.

Conclusion

 Even when a judgment has been secured and it’s been determined that collection actions are worthwhile, determining which collection actions to pursue in pursuing them are skill-intensive tasks. This presentation has provided an overview of some of the options available to judgment creditors.


Footnotes


[1] How to Handle a Post-Judgment Debt, BalancePro, available at https://www.balancepro.net/education/publications/howtohandlepost.html.

[2] Garnishment Process, Debt.Org, available at https://www.debt.org/garnishment-process/.

[3] Id.; 15. U.S.C. 1671, et seq.

[4] Id.

[5] Post-Judgment Debt Collection Techniques, LawFirms.com, available at http://www.lawfirms.com/resources/dealing-with-bad-debt/post-judgment-debt-collection-techniques.htm

[6] Statutory or contractual interest on debts can have significant effects on the outstanding debt, especially over longer periods of time.  See Post Judgment Interest Rate, United States Courts, available at http://www.uscourts.gov/services-forms/fees/post-judgment-interest-rate

[7] See supra note 11.

[8] See, e.g., Ohio Rev. Code Ann. § 2329.11; Wis. Stat. Ann. § 815.05 (2011).

[9] Turner v. Rogers, 564 U.S. 431 (2011)