Judgment Debtor Exams and the “Secret Lien”
If you were successful in obtaining a judgment against a former tenant or other third party, chances are you will not be paid voluntarily. Sometimes obtaining the judgment may prove much easier than collecting it. This article will discuss judgment debtor examinations and the “secret lien” which are little known tools that can lead to success in the collection effort.
Creditors routinely collect judgments by bank levy, wage garnishment, and payment plan. In the vast majority of cases, though, a creditor does not know where the defendant currently banks or works. A post-judgment debtor examination in court is an excellent way to find out this information and is the post-judgment equivalent of a deposition.
To initiate the process, a creditor wishing to examine a defendant may reserve a court date by submitting a Judicial Council Form entitled Application and Order for Appearance and Examination to the Clerk of the Court. Once filed, the creditor must personally serve the judgment debtor with the order to appear at least ten days prior to the court date.
Most often, the proper court for the examination proceeding is the court in which the judgment was entered. However, if the debtor resides in a different county and more than 150 miles from the courthouse where the judgment was entered, the examination must take place in a courtroom nearer the defendant. To file for an order to appear in a court other than where the judgment was entered, the creditor must file a special application and affidavit with the court along with an additional filing fee. Prior to submitting this application, the creditor must file an abstract of judgment in the court where the examination is sought.
Upon service of the order, the judgment debtor is required by law to attend. In the event that the judgment debtor fails to appear, a bench warrant may be issued by the court for the debtor’s arrest. Typically, the court sets bail in the amount of the outstanding judgment.
When appearing in court for the examination proceeding, the defendant will be sworn by the Clerk of the Court and under oath. The debtor must reveal and identify all assets at the examination hearing. The creditor may properly present questions pertaining to place of business, banking, inheritances, automobiles, personal property, and real estate, for example.
Courts allow very extensive and intrusive lines of inquiry. As one court opined, the purpose of the examination is to “leave no stone unturned in the search for assets which might be used to satisfy the judgment.” Thus, seemingly remote questions are relevant if they could lead to the existence and location of an asset. The widest scope of inquiry concerning the property and business affairs of the debtor is permissible. Interestingly, even the privilege not to testify against a spouse or registered domestic partner is unavailable to the defendant. The creditor may examine the judgment debtor’s spouse concerning any property in which the debtor has a legal or equitable interest.
One aspect of the judgment debtor examination proceeding that is often overlooked is the “secret lien” that is created upon serving the debtor with the order to appear. Once the debtor is served, a one year lien is automatically placed on all of the debtor’s non-exempt property whether or not it is in the debtor’s possession and control. In fact, the creditor need not actually examine the debtor for the lien to be effective because the service of the order to appear creates the lien.
The lien is a statutory creature that is not published or recorded. The debtor may not even know of its existence. This “secret lien” can be especially beneficial in post-judgment priority litigation or, in some circumstances, a bankruptcy proceeding.
As you might expect, most defendants loathe the courtroom experience. Unless you’re a judge, lawyer, bailiff, or court clerk, the courtroom is a foreign land to be avoided. Because the exam is open to the public, it can be an embarrassing and harrowing circumstance for the defendant. Based upon pure psychology, the service of an order to appear in court can be an outstanding negotiating tool. It literally brings your defendant to the table.
In order to maximize the mechanism, a turnover order can be obtained in conjunction with the examination proceeding. Under a turnover order, the judge can require the appearing defendant to deliver any money or property in his or her possession to the creditor or to the sheriff on the spot. For this reason, it is recommended that the attorney for the creditor apply for a writ of execution prior to the examination date. With the issued writ, the sheriff can properly confiscate monies from the defendant at the judge’s request.
The secret lien, negotiating leverage, and the ability to obtain a turnover order make the judgment debtor examination an especially effective collection tool. Is your collection partner using judgment debtor examinations and the “secret lien”?
KTS’s Creditors’ Rights and Collection Practice Group utilizes all available collection tools to ensure our clients have the best opportunity in collecting all monies past due. For more information about collections, please contact us at 800-575-1770 and review our website at www.kts-law.com.
Negotiating Tip 114: Retreat Negotiations
March 29, 2019
Negotiating Tip 113: Activating Our Opponent
March 28, 2019
Negotiating Tip 112: Misconceptions
March 27, 2019