Collections

Unfortunately, the award of a judgment is often not the end of the litigation process for a successful litigation claimant. A judgment debtor cannot be forced to pay a judgment creditor. Rather, if the debtor is unwilling to pay, it is up to the creditor to “execute” on the judgment, that is, to locate and attach unprotected assets of the debtor, and convert them into cash. This process is generally known as post-judgment “collections” and it is a unique and sometimes complicated aspect of a lawsuit. Robinson Tweedy practices in this area regularly and we are familiar with the rules governing collections and the techniques that are sometimes required in order to turn a judgment into real money.

Post-judgment collections practice generally includes a special form of discovery whereby the creditor is allowed to question the debtor under oath to discover the location of assets and, in some instances, third-party debtors of the judgment debtor can be compelled to answer questions about moneys owed to the judgment debtor. If a debtor has bank or mutual fund accounts, they can be “garnished” which may require the institution to pay those funds into the registry of the court for ultimate distribution to the judgment creditor.

If the debtor has non-exempt personal or real property, judgment liens can be placed on that property, or the property can be attached, and the creditor can request that the Sheriff seize the property and sell it, turning the proceeds of the sale over to the court for ultimate distribution to the creditor.

Occasionally a judgment debtor will seek to avoid paying a judgment by giving property to a relative or a third party without adequate consideration. In such cases, a judgment creditor can file a new lawsuit against the third-person seeking to have the court order that person to return the property or money for distribution to the creditor. Such actions are known as fraudulent conveyance claims.

Special situations often require special collection procedures. For example, a judgment debtor may have an insurance policy that could provide a potential source of recovery on a judgment. An insurer might provide a defense in a construction defect case, but reserve its rights as to any obligation to pay the claim or judgment. A judgment creditor can garnish the insurance policy and litigate the coverage issues in an expedited post-judgment proceeding rather than the much more protracted and expensive procedures encountered in a regular lawsuit.

Successful collections can begin before a lawsuit, even before a business relationship is fully formed, by drafting enforceable contract clauses that give a claimant certain advantages in the post-judgment phase of a lawsuit. Such clauses can be as simple as providing for recovery of attorney fees incurred in pursuing a claim, and the imposition of a substantial interest rate on unpaid sums. Such clauses provide a negative incentive to the defendant to avoid payment of the debt, or payment of a judgment if a claim goes that far. We regularly draft such contract provisions for our clients.