Many clients are surprised to learn that obtaining a judgment is not the end of the story in litigation. Even lawyers fall into the trap of celebrating a large verdict or favorable judgment before a judgment is actually collected. The often disappointing reality, particularly in commercial litigation, is that a judgment is sometimes only the tip of the iceberg. The post-judgment collection process is often complex, extensive, and fraught with frustrations ranging from minor challenges, such as a judgment debtor’s relocation, to significant obstacles, including a judgment debtor’s insolvency, bankruptcy, or artful service-dodging. At times, simply serving the judgment papers will rattle a party into writing a check. However, the more common scenario is a prolonged hunt for assets that may ultimately leave the judgment creditor empty-handed.
Understanding the basics of judgment execution is critical in creating realistic expectations about the prospects of collection. The first step is to ensure compliance with the judgment debtor’s rights. Hearkening back to the foundational principles of property law, an individual’s right to use, enjoy, and retain his own property is sacred and spans all practice areas. As such, the law allows a judgment debtor to designate certain property as exempt from a civil judgment. All states have their own exemption laws that apply to a judgment debtor’s property located in that state. In North Carolina, there are several items an individual can protect from the judgment’s reach. A few examples include:
- Up to $35,000 in a residence and burial plots. If the individual is unmarried and 65 or older, he or she may designate the same in an amount up to $60,000.
- Up to $5,000 in personal property – including household goods and appliances – and an additional $1,000, but not to exceed $4,000, for dependents.
- Up to $3,500 in a motor vehicle after deduction of valid liens or security interests.
- Healthcare aids such as wheelchairs and hearing aids.
- Up to $2,000 in professional books or tools.
- Life insurance policies where the sole beneficiaries are the spouse and/or children.
- Retirement accounts.
In the case of an individual judgment debtor (as opposed to a corporate judgment debtor), the judgment creditor is required by law to serve the judgment debtor with a formal notice of the right to designate exemptions. From the date of service of the notice, the judgment debtor is allowed twenty days to designate exemptions. The judgment creditor is entitled to challenge the exemptions by filing a Notice of Objection with the Court in the county where the case was heard. However, there are narrow circumstances in which the Court will uphold a judgment creditor’s objections, for instance, if the judgment debtor designated more property than the law allows.
Once the exemption period expires, the judgment creditor may file for the issuance of a writ of execution in each county in which the judgment debtor is believed to own assets. In counties other than the county in which the judgment was entered, the judgment creditor must pay a small fee to transcribe the judgment in that county. The Clerk of Court in each county in which the judgment has been transcribed will then issue the writ of execution. The writ gives the Sheriff’s Office in each county the authority to execute the judgment, which entails formally serving the writ of execution on the judgment debtor and locating and seizing non-exempt property. The Sheriff may clear bank accounts, seize motor vehicles, place a lien on a home, and collect personal items and effects. Unlike other states, however, North Carolina does not allow a creditor to garnish wages except in certain rare situations (for example, child support). If the judgment attaches to a motor vehicle or other personal property, the Sheriff’s Office may sell the property and use the proceeds from the sale to pay off all liens against it, including the judgment. A judgment can also attach as a lien on a house, which will render it unsaleable until the judgment is satisfied. This can give the judgment creditor leverage in forcing the judgment debtor to satisfy a judgment. However, it is not always easy to find property that is unencumbered or valuable enough to satisfy a judgment. Therefore, often the most efficient way to satisfy a judgment, aside from the judgment debtor writing a check, is to locate a non-exempt bank account with sufficient funds to satisfy the judgment.
A judgment is valid for up to ten years. If a judgment debtor acquires new property in the counties in which the judgment has been entered or transcribed, the judgment will automatically attach to that property. However, it is important to understand that a judgment may never be satisfied. If the judgment debtor has several other judgments against him/her, any seizable assets will be subject to a priority battle among the various creditors. Additionally, many corporate judgment debtors may dissolve, file bankruptcy, or transfer or hide assets, while debtors who are individuals may dodge the judgment by relocating to another state. A skilled attorney will conduct the research necessary to assess the likelihood of collecting on a judgment and will advise you of these risks prior to initiating litigation.
Given the inherent challenges in judgment execution, it is critical to engage attorneys who will diligently and tenaciously pursue collection. A skilled attorney will take an active role in judgment collection by routinely investigating the status of the judgment debtor’s assets and liabilities and communicating with the Sheriff’s Office in the relevant counties regarding what property might be available and subject to seizure. At Miller Monroe, we understand that post-judgment collection requires as much diligence as litigating a case. We have successfully collected on numerous judgments in and out of bankruptcy, and we will take an aggressive role in enforcing a judgment in your case. We will also guide you through an honest and transparent cost/benefit analysis where we believe collection is unlikely. When hiring a litigator to handle your commercial litigation matters, we would strongly encourage you to inquire about the firm’s experience in enforcing judgments as part of your due diligence process. It is critically important that your attorney be well-versed in litigating the underlying case, but also in pursuing assets necessary to fulfill a judgment in the event that you prevail.
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