CREDITOR DEBTOR LAW
An Overview of Creditor-Debtor Law and
Judgment Enforcement Techniques
CAUTION STATE LAW VARIANCES
Judgment enforcement law is notoriously non-uniform between the various states.
Enforceability of Judgments on Appeal
What if a judgment is entered against a debtor, but the debtor initiates an appeal of that judgment: Is the judgment still enforceable despite the appeal? In most circumstances, it is -- the judgment is in fact fully enforceable although the debtor has taken an appeal.
To prevent the creditor from enforcing the judgment during the pendency of the appeal, the debtor will usually have to post an appellate bond, sometimes known as a supersedeas bond, for the amount of the judgment plus some amount to cover the creditor's attorneys fees and costs on appeal (for fraudulent transfer cases, the bond is sometimes double the amount of the value of the property transferred). In obtaining the appellate bond, the debtor will usually have to pledge sufficient assets to the issuing bonding company (read: insurance company) so that the bonding company is not exposed to losses in case the bond has to be paid. If the creditor wins the appeal, the creditor can simply collect against the bond, and then the bonding company will collect against the debtor.
If the debtor doesn't post a bond, then the creditor is usually free to collect on the judgment even though the appeal is simultaneously going on. If the debtor loses the appeal, then the creditor is of course free to keep whatever has been collected in the interim. But if the debtor wins the appeal, then the debtor can obtain a judgment against the creditor for the amounts that the creditor collected. Thus, most of the time (but not always), the creditor will set aside whatever is collected during the appeal into a special accounting pending the outcome of the case -- certainly this is the "best practice".
What if, as so often happens, the judgment exceeds the net worth of the debtor such that it is impossible for the debtor to obtain such a bond? In some states, the debtor can apply for what amounts to a hardship relief from the court staying enforcement of the judgment until the appeal is heard. In other states, well, too bad so sad. If the debtor cannot obtain such relief, it is a common practice for the debtor to file for Chapter 11 bankruptcy relief, which can buy some time for the debtor to pursue its appeal; however, this can be a bad gamble in particular circumstances, as no state court has anywhere near the immense powers of the federal bankruptcy courts to separate a debtor from its wallet.
The Fugitive Disentitlement Doctrine
Debtors who are appealing a judgment must be especially cautious not to do anything that would cause them to be held in contempt, for the creditor may use the contempt to have the debtor's appeal thrown out under the so-called "fugitive disentitlement doctrine", which basically posits something to the effect that one in contempt of court cannot simultaneously seek to obtain aid from the court. Thus, when a debtor is appealing the underlying judgment and has not posted a bond to stay the appeal, a creditor will often try to mousetrap the debtor into a contempt situation so as to get the debtor's appeal thrown out, or at least paint the debtor as an unworthy appellant before the eyes of the court.
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MAJOR SECTIONS OF WEBSITE
ABOUT JUDGMENTS - Overview of judgments as they relate to judgment enforcement.
Collecting Default Judgments - Special considerations for default judgments.
Form of Judgment for Collection - Getting the form of judgment right can make collection easier, and getting it wrong more difficult.
Judgments On Appeal - Is a judgment enforceable when it is being appealed? Maybe. Appeal bonds a/k/a supercedeas bonds also discussed.
JUDGMENT ENFORCEMENT DISCOVERY - It's difficult to collect against the debtor's assets unless you find them, and it can be difficult to find them.
Private Investigation - Non-judicial methods of investigating the debtor's assets and affairs, including database searches and the use of private investigators.
Written Discovery - Some states allow for written discovery to be propounded to a debtor, which is a good way to start accumulating information from the debtor, or at least what the debtor claims is his assets.
Debtor Examinations - The traditional way of obtaining information from a debtor, which is to haul them into court, sit them down at a table, and ask questions point-blank about assets and income.
Third-Party Examinations - Means of obtaining discovery from third-parties about the debtor's assets and affairs.
JUDGMENT ENFORCEMENT REMEDIES - The primary methods for taking assets and income away from the debtor.
Judgment Liens and Abstracts of Judgment - Ways of freezing assets so that they cannot be easily transferred away pending execution.
Writ of Execution - This document authorizes the Sheriff to make collections on behalf of the debtor, and some other stuff.
Writ of Garnishment - Used to collect wages and against income streams in some states.
Federal Wage Garnishment Law (FWGL) - 15 U.S.C. sec. 1671 provides nationwide wage exemption.
Writ of Levy - The remedy that allows the Sheriff to grab the asset and auction it off on the courthouse steps.
Charging Orders - The "exclusive" remedy against a debtor/member's interest in a partnership, limited partnership, or limited liability company.
Assignment Orders - An order used to intercept income streams, such as advertising revenues, royalty payments, etc.
Creditor Suits - Actions taken against a third-party who has possession of an asset that is still titled in the name of a debtor, or who has violated some other enforcement process.
Receivers - Often the end-game strategy to take a difficult debtor down, by having the court appoint a neutral with all the powers of the debtor, such as to sell season football tickets, or dissolve corporations.
OTHER JUDGMENT ENFORCEMENT THEORIES - While technically not "remedies", these bodies of law are often used in judgment enforcement proceedings.
Alter Ego and Veil Piercing - Cutting through corporations, trusts, and LLCs which are simply the debtor himself in another form.
Voidable Transactions (was Fraudulent Transfer and Fraudulent Conveyances) - Used where title has been transferred to a third-party.
OPINIONS -- Interesting opinions in creditor-debtor law.
Kyne v. Eustice, 215 Cal.App.2d 627, 30 Cal.Rptr. 391 (1963).
In re Foster, 556 B.R. 233 (Bk.E.D.Va., 2016).
Church Joint Venture, L.P. v. Blasingame, 2020 WL 284527 (6th Cir., Jan. 21, 2020).
LAGNIAPPE - A potpourri of stuff.
OTHER INFORMATIONAL WEBSITES
BY JAY ADKISSON
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© 2020 by Jay D. Adkisson. All Rights Reserved. No claim to original government works. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site https://creditordebtor.com Contact Jay Adkisson by phone to 702-953-9617, by fax to 877-698-0678, or by e-mail to jay [at] creditordebtor.com