This article gives an overview of the various options in collecting judgments whether they arise from a successful suit on a negligence claim, contract dispute, debt owed, or any other action resulting in a money judgment.
The ability to collect a judgment is one of the first factors potential plaintiffs and their attorneys will, or should, consider before filing suit. After all, the “moral victory” of obtaining a judgment may provide very little satisfaction if it is discharged in bankruptcy or if the judgment debtor has no assets with which to satisfy the judgment.
In many cases, especially those involving automobile collisions, there will be insurance coverage which will pay some or all of the judgment. Absent a dispute over coverage, insurance carriers will usually attempt to settle a claim before a lawsuit is filed or at least before a trial. If there is no settlement, the insurance carriers typically pay without further court action once a judgment is final (which may be after an appeal). Therefore, the following measures apply primarily where there is no insurance coverage or insufficient coverage.
Assuming no bankruptcy is filed and one has a final judgment, the courts provide methods for attaching a judgment debtor’s “nonexempt” assets. The most common assets considered to be “exempt” (protected from attachment for payment of debts) are: the debtor’s principal residence; household goods; tools of the debtor’s trade and farm tools up to $10,000.00 in value; clothes; $7,500.00 equity in a vehicle; 75% of the debtors current wages earned within the previous 90 days; alimony and child support; and certain retirement, pension and annuity funds. In addition, there are other restrictions on some of the exemptions listed above and there are a number of less commonly claimed exempt assets. Oklahoma’s exemption statutes can be found here.
Also, the only asset of value to the judgment creditor will be the debtor’s interest in the property. Property which is not exempt will be of no benefit to the judgment creditor if the debtor has no equity in the property. For example, if a debtor owns a bass boat worth $20,000 but owes $20,000 or more to a bank which has a valid lien on the boat, the boat cannot be sold to satisfy the creditor’s judgment.
Once the judgment creditor has located a nonexempt asset in which the debtor has equity, he is still required to use the court to attach it; the creditor cannot take the law into his own hands and forcibly seize the property from the debtor. As to physical assets of the debtor (boats, coin collections, real property, etc.), the procedure used to reach the debtor’s property is “execution.” Here, the court directs the county sheriff to seize the nonexempt property of the debtor and then offer the property for sale at a public auction conducted by the sheriff (i.e., at a sheriff’s sale). Once the property is sold, the funds are turned over to the judgment creditor. If creditor is the only bidder or makes the highest bid at the sale, the property will be sold to the creditor with the sale price being paid by credit on the judgment rather than cash.
A more common method of judgment collection is a garnishment, which is an order for a third person who is holding property belonging to the debtor or who owes money to the debtor. Usually, a “continuing wage garnishment” summons is served upon the debtor’s employer, which requires the debtor’s employer to pay a certain percentage of the debtor’s wages to the judgment creditor for six months. This can be repeated every six months until the judgment is paid.
Garnishment summonses are also frequently served upon banks where a debtor is suspected of having a bank account. The garnishment summons directs the debtor’s bank to pay to the creditor all of the funds on hand, up to the amount of the judgment. This procedure can be repeated as often as necessary.
We have addressed the issue of collecting a judgment by executions and garnishments, which are effective ways of seizing money or other property and having the money or proceeds from the sale of other property applied to the judgment. However, judgment creditors sometimes have no idea whether a debtor has any money or other property upon which he can execute.
Fortunately, Oklahoma law provides a method for a judgment creditor to learn about the debtor’s assets, income and other financial information. A judgment creditor can obtain a court order for the judgment debtor to appear in court and disclose his assets and income. The debtor can also be ordered to bring such things as bank statements, vehicle titles, and copies of tax returns.
Once in court, the judgment creditor can view the documents brought by the debtor and can ask the debtor questions which the debtor must answer under oath (i.e., under penalty of perjury). From the debtor’s documents and answers, the judgment creditor can often discover bank accounts or other assets which can be used to satisfy the judgment.
One area of inquiry of the debtor should be what property the debtor has given away or sold in the last few years. Often, in anticipation of defaulting on a debt or of a judgment being rendered against him, a debtor will attempt to give (or sell at a great discount) nonexempt assets to relatives or friends to prevent the assets from being sold to satisfy the judgment.
The transferring debtor may have no intention of ever having the property transferred back to himself (for example, the debtor may think, “I’d rather my daughter have this property than that greedy creditor, so I’ll just give it to my daughter”). On the other hand, a debtor may be using the transfer as a tool to hide the property from creditors with the intention of having the property transferred back to him after the creditor gives up trying to collect on the judgment (for example, the debtor may think, “I’ll deed this property to my daughter with the understanding that she’ll deed it back to me in a few years”).
In either case, this tactic is called a “fraudulent transfer.” A fraudulent transfer makes collection of a judgment more difficult, but not impossible.
Under Oklahoma law, and similar federal and bankruptcy law, judgment creditors can take action directly against the person receiving fraudulently-transferred property. One possible remedy for the judgment creditor is to undo the transfer itself (i.e., to obtain a judgment against the transferee which declares the transfer fraudulent and therefore void, which then makes the property available for an execution sale).
The other possible remedy is to obtain a money judgment, for the value of the property value, against the transferee. After that is done, the judgment creditor can execute upon the transferee’s property, which in most cases would include the fraudulently-transferred property.
When a judgment creditor learns of a fraudulent transfer, prompt action should be taken; if a judgment creditor waits too long to file a fraudulent-transfer action, the action may be barred by the statute of limitations.
This need for prompt action is not limited to fraudulent-transfer actions; rather, it generally applies to all aspects of judgment collection. One very important point to remember is that judgments do not live forever in absence of specified affirmative action by the judgment creditor.
In Oklahoma, a judgment creditor must attempt general execution on his judgment (or have a garnishment summons issued or file a notice of renewal of judgment) within five years of the date of the judgment, or the judgment becomes unenforceable by operation of law, even though the judgment may be unpaid in whole or in part. Once appropriate action is taken to keep the judgment from becoming unenforceable, the judgment will remain enforceable for another five years, during which time the judgment creditor should once again attempt general execution (or have a garnishment summons issued or file a notice of renewal of judgment). This cycle can be continued so long as the judgment is not paid in full.