More Thoughts on the Enforcement of Judgments
I wrote a post in 2020 about the work lawyers need to do after they win to actually collect the assets the court awarded. Since then, I have had to enforce some more judgments and challenge some enforcements, and so I have some additional thoughts on the process.
Technically, a judgment debtor needs to tell the creditor where her assets are in discovery. But in practice, judgment debtors ignore these requests. And in the time it takes to get a contempt order, the debtor may hide or dissipate her assets. Accordingly, it may be worth it for the judgment creditor to do their own research to find assets that can be used to satisfy a judgment, rather than rely on discovery.
Sheriffs often take a substantial fee when taking money to collect a judgment. This may make sense if the sheriff is taking physical property by force, but it may seem unexpected when the sheriff is just facilitating the transmission of a check from a bank to a lawyer. This may surprise creditors who need to pay big poundage fees and cut into an expected recovery. It is often a reason to settle with the judgment debtor at a slight discount rather than pay the sheriff.
The rules that concern judgment enforcement vary in each state and are complex. A crafty judgment debtor may find ways to elude the restraints and methods that enable judgment enforcement. This means that a major key to judgment enforcement is persistence and attention to detail. This is also true since banks are also very reluctant to help in judgment enforcement unless a creditor satisfies very specific rules that the bank may just make up.
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Once a litigant wins a lawsuit, she does not automatically get money. Instead, the end of a lawsuit may not end the process for a litigant to collect money from a reluctant defendant. That process may involve looking for the defendant’s assets, demanding money from third parties that owe money to the defendant, and getting a sheriff to seize the defendant’s assets.
Why should you continue to read this post about judgment enforcement?
You have a judgment, but you would prefer money
You’re curious about what sheriffs do outside of old western movies
You like reading short pieces and aren’t picky about the subject matter
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Litigants Must Identify Defendants’ Assets
If a defendant does not voluntarily pay a judgment, the plaintiff must find assets that belong to the defendant and collect them. This process may be easy for some defendants if they have well-known assets or if details about their bank accounts were shared in discovery.
But for others, plaintiffs may need to engage in research, such as hiring an investigator or using public records (like property records or vehicle registrations) to find assets. They may also serve post-judgment discovery requests where state law authorizes them to do so. In New York, plaintiffs may serve questionnaires to judgment debtors, asking them questions about where they have assets so they can be collected. They may also take depositions and demand documents as part of an asset search.
A common practice among judgment creditors in New York is to issue requests to many major banks, with the hope that the judgment debtor holds an account at one of them. Lawyers often send “retraining notices” with these requests, telling the banks to freeze the money in the account so that the judgment debtor does not just immediately withdraw the funds once the judgment creditor finds them.
Litigants May Need to Use Various Legal Procedures to Collect on Judgments
Once a judgment creditor finds assets, she cannot just take them by force. Instead, for assets like cash or physical property, she must pay a sheriff to take them. For real estate, a sheriff may supervise the changing of the locks of a home after giving notice to the judgment debtor. For intangible assets, like the ownership of a business entity or intellectual property, the judgment creditor may ask the court for an order that declares the judgment creditor to be the new owner of the property.
In many American jurisdictions, a judgment creditor may take her judgment from one state and enforce it against property in another state pursuant to the Uniform Enforcement of Foreign Judgments Act. In New York, a judgment creditor from another state may need to domesticate the judgment in New York pursuant to CPLR 5402 before enforcing it in the state.
If a judgment creditor discovers that a third party owes the judgment debtor money, such as a bank that holds the judgment debtor’s money in an account, the judgment creditor can initiate a new proceeding called a “turnover” proceeding to take the property to satisfy the judgment creditor’s debt.
Judgment Debtors May Declare Bankruptcy
Some judgment debtors do not have enough assets to satisfy the judgments against them. In that situation, a judgment creditor may wait for the debtor to accumulate assets and then collect years later. In New York, judgments for money are valid for twenty years.
Those debtors may consider declaring bankruptcy, which generally has the effect of cancelling the judgment. To derive the benefits of bankruptcy, a judgment debtor needs to get an order from a federal bankruptcy court.
A judgment creditor is not entirely out of luck if the judgment debtor successfully declares bankruptcy. She may get a pro rata share of a portion of the judgment debtor’s assets to satisfy her judgment. But this is usually just a fraction of the amount due under the judgment. And if the judgment debtor is a person, many of a her assets may be exempt from collection in bankruptcy, such as her home.