Post-Judgement Collections - Module 5 of 5

Module 5: Post-Judgment Collections 

We will now move to the final phase of the debtor-creditor relationship: post-judgment collections.

Positioning to Enforce a Judgment

Debtors holding a judgment over a creditor are called judgment creditors. Debtors who have had a judgment entered into the record against them are called judgment debtors. The easiest way for the judgment creditor to collect the monies won in the lawsuit is to have the judgment debtor simply pay the amount or arrange to pay the amount in installments over time, and then actually make those installment payments. But in many cases, the judgment debtor either cannot or will not pay the judgment debt. This is where the post-judgment collection process begins.

The first step in collecting on the judgment is locating the debtor, which may not be the easiest thing to do. Sometimes private detectives or “skip tracers” may even be called in. The next step is determining what assets of the judgment debtor are attachable and accessible. To do this, the judgment creditor will need to locate the debtor’s assets.

The creditor can first look to its own records for bank account information like cancelled checks and information on a loan application that the debtor completed. There are also public records available and more private records available for a fee. Private detectives may be called in to find these assets.

One tool available to the judgment debtor is post-judgment discovery.[1] Various state laws call for post-judgment motions to force the debtor to appear at hearings, file affidavits with listings of their assets or answer interrogatories to disclose the debtor’s assets. Information sought in this manner can include the amount and location of bank accounts, real estate and personal property that could be used to satisfy the judgment. Failure of the judgment debtor to appear at the hearing or answer the interrogatories in a timely fashion can be punished by a finding of contempt of court.

If the judgment is in one state and the judgment debtor owns property in another state, the “full faith and credit” clause of the Constitution requires that states accept and apply judgments of other states.[2] So, a judgment in, for example, an Ohio court can be filed as a judgment with the appropriate office in Pennsylvania, with the same effect as if the judgment had been handed down by a Pennsylvania court.

Various states have enacted the Uniform Enforcement of Foreign Judgments Act to simplify the process of transferring judgments to different states. If the state is signatory to that Act, then the only requirement for enforcing a judgment in that state is filing the judgment in the new state. Otherwise, the out-of-state judgment may have to be brought as a separate action based upon the debt created by the judgment in the other state.

Judgment Liens

Following a determination of debtor’s assets, a judgment creditor may obtain a judgment lien.[3] This differs from most liens in that it’s not necessarily placed upon a specific piece of property. Rather, a judgment lien is a general lien placed against all property of the debtor. Most states only allow general liens against real property, not personal property. Personal property is subject to a different document called an execution lien.[4]

Some states only allow a judgment lien to be placed on property that sits in the county in which the lien is filed, which requires “docketing” the judgment in that county when the case occurred in another. Docketing means filing the judgment by filling out certain paperwork and then placing it on the docket of the court, where it becomes public record.

Some states automatically create a judgment lien against a judgment debtor as soon as the judgment itself is filed. Other states require a separate filing with the court.

The next issue that may arise is the question of the priority of debts in the case of multiple creditors. Most states have a “first to the courthouse” rule, which provides that the first judgment debtor to file a lien has priority for monies received from the proceeds of the sale of the property on which the lien rests. But that rule can vary depending on whether “first to the courthouse” means the time the judgment is rendered or the time that the judgment is docketed.

Judgment liens do not last forever. Most states limit their duration, with twenty years being the most common limitation.[5] After that time, they may be filed again as either a “revival” or a “renewal.”

A judgment lien creates a right to levy on the property of the judgment debtor that dates back to the time of the judgment, nullifying any “intermediate encumbrances.”[6] That is why the “race to the courthouse” determines who can levy against the proceeds of the sale of the debtor’s property.  

Note also that a judgment lien “runs with the land.” This means that if property subject to the lien is sold before the lien can be enforced, the judgment creditor does not have rights to the proceeds of the sale, but only to the property itself. The judgment creditor can then execute the judgment lien against the new owner of the property. Judgment liens are satisfied when the property is sold and the proceeds transferred to the judgment creditor, either through a voluntary sale or through a Sheriff’s sale.

Attaching Personal Property

Personal property, including money, can be subject to an execution lien. The enforcement of an execution lien is often referred to as a levy. The action itself is accomplished through filing a request for a writ of execution[7] with the court. If granted, it is enforced by an officer of the court—usually a member of the Sheriff’s office. Note that, in some states, a writ of execution must be sought against personal property before a court will allow real property to be attached.

Often, there are different rules for liens against real and personal property. For instance, in most states, a lien against real property works against all property owned by the debtor in that county, whereas an execution lien against personal property can only be had against a specific item.

The execution of the judgment itself is the same whatever type of property is subject to the writ. The Sheriff will seize the property and then sell it at a public auction, and the proceeds from that Sheriff’s sale will go to any judgment creditors in the order of “first to the courthouse.” Execution liens also have statutory time limits. 

Sometimes, interests in property held by the debtor cannot be reached with normal forms of attachment—particularly for equitable interests, partial ownerships and intangible or intellectual property. These and similar circumstances may require one of the following equitable actions with the court to enforce the judgment lien.

State law may allow for a creditor’s bill, which allows the attachment of these interests if the creditor can prove that the debtor does not have sufficient property to attach to satisfy the debt.[8] A similar but limited collection device is the charging order, which allows the creditor to go after the partnership interests of a partner of the debtor.[9] Another action allowed by law is the post-judgment receivership, which can be used in the same manner as the pre-judgment receivership we discussed last module. Finally, two other equitable actions against the debtor’s property that may be available are the filing for an injunction, to keep the debtor from selling property and seeking an order for the sale of property.

Post-Judgment Garnishment and Levy

Judgment creditors can take cash assets from the debtor in various ways, either from bank accounts or from sources of income such as wages. These are called post-judgment garnishments. Taking a percentage of the debtor’s income, particularly from wages, is simply called a garnishment.[10] Taking cash from a debtor’s bank account is called a levy or a bank garnishment.

A post-judgment garnishment takes money from the account of a third-party entity that owes the judgment debtor money and transfers it instead to the judgment debtor. That third party, most commonly an employer or bank, is called the garnishee. The act of paying the judgment creditor out of the wages of the judgment creditor is called a wage assignment.

Federal law limits the amounts and kinds of debts that can be garnished.[11] States may impose additional restrictions on debt collectors.[12]

Under federal law, a judgment creditor can garnish up to 25 percent of a person’s disposable income or the amount of income that exceeds 30 times the federal minimum hourly wage per paycheck, whichever is less. Disposable income means gross income minus mandatory government deductions like taxes, social security and required retirement deductions. Voluntary deductions include savings accounts, health care, charitable donations and so forth.[13]

Student loan garnishments are limited to 15 percent of gross income. Child and spousal support have different limits. If those are subject to a court order, they can total up to 60 percent of a paycheck. Those obligations not subject to an order can be withheld at a rate of 50 percent. Garnishments for taxes have complex formulas based on many factors and take expenses into consideration.

Garnishments can be one-time or continuing. One-time garnishments include bank levies, which generally have to be refiled each time they are taken. A one-time garnishment could also be from wages or other sources. Wage assignments are ongoing or continuing garnishments and the garnishee must typically be the debtor’s employer.[14] Federal law forbids an employer from firing an employee who is subject to a garnishment.[15]

States have different rules regarding how long a wage assignment can last. In Virginia, for example, wage assignments are good for 90 or 180 days, and then have to be re-filed.[16] Four states-- South Carolina, Pennsylvania, North Carolina, and Texas—do not allow wage garnishments from most creditors. States that allow garnishments also allow a process to fight a garnishment by using that state’s exemptions rules.  

Military garnishments are administered by the Defense Finance and Account Services against servicemembers who collect paychecks from the military.[17] The DFAS Garnishment Law Directory processes all claims for debts arising from child and spousal support, commercial debts, bankruptcies and divided military spousal pay. It also processes debts owed to the Department of Energy, Department of Health and Human Services, Department of Veteran’s Affairs and the Broadcasting Board of Governors. Processing the garnishment simply requires sending the court order to DFAS.

Internal Revenue Service garnishments, called levies, work like any other wage garnishments, except that they do not require court orders. The debtor who owes money to the IRS will first receive a Notice of Demand for Payment, and then a Final Notice through the mail. A levy notice is sent out giving the debtor 30 days to pay. If the debt is not paid or if arrangements are not made at that point, the IRS can garnish the debtor’s wages. The employer will receive IRS Publication 1494,[18] explaining how much to take out of the employee’s pay. The employee will then fill out an income and expense form; if the employee does not fill the form out, the IRS will use its own calculations. The IRS can garnish 15 percent of a debtor’s social security payments without notice and continue that garnishment until the entire tax bill is paid. At the same time, IRS debtors can request a hardship exemption from tax collections, a complex process of balancing the income and expenses of the taxpayer.[19]

Garnishment Example: Florida

The process of filing a wage garnishment varies by state. We will discuss here the procedures used in Florida as an example. A garnishment or levy against a bank account in Florida is simply called a garnishment. The Florida wage garnishment process is based on what is called a Continuing Writ of Garnishment Against Salary or Wages and is governed by state statute.[20] This writ is an order by the court to an employer to transfer monies from the judgment debtor to the judgment creditor. The creditor obtains this writ by filing a short motion with the court. The motion is accompanied by the appropriate court fees and $100, which goes to the garnishee for costs associated with the garnishment.

That motion is then served on the judgment debtor, who has 20 days to respond. The debtor may object to this writ by offering proof of applicable exemptions (called a “claim of exemptions”) or by alleging a defect in the procedures by the creditor.[21] Florida has about a dozen different exemptions.[22] Either party may ask for a jury trial on the motion for this writ. If the defendant does not answer the writ within the 20 days, a default judgment will be entered.  

Once granted, the writ is served on the employer or bank, which then transmits the funds to the judgment creditor. Service of the writ also creates a lien on all debtor’s property in favor of the creditor.

Florida has not imposed stricter garnishment limits on the percentage of wages that can be garnished than does federal law. Therefore, the federal limits of 25 percent of disposable income or 30 times federal minimum wage apply. If the debtor’s weekly income is below 30 times the federal minimum wage, the debtor cannot be garnished at all.

Florida has a “head of household” exemption to wage garnishment. If the debtor is head of a household and makes less than $750 per week, the creditor cannot garnish at all. Bank accounts that contain any wages in them are also free from garnishment for six months.

The garnishment can be assessed against the debtor’s bank account or wages without notice. Once the writ of garnishment is served on the debtor, that debtor may apply for these exemptions by affidavit with the court. Florida does allow a garnishment before a judgment in some limited circumstances, though it requires a hearing first.[23] Once the debt is paid, the garnishment will cease. If the debt cannot be paid, the debtor may want to explore other options such as bankruptcy.

Conclusion

Thank you for participating in LawShelf’s video-course on debtor and creditor law. If you have not already done so, we encourage you to also take our course in the basics of bankruptcy law, which complements this one to provide a bigger picture of debt and collections law. We also invite you to choose from our many other commercial law courses. Thank you and please let us know if you have any questions or feedback.