Creditor Collection Methods

Effective asset protection planning requires an understanding of what creditors may do and what tools they may use to discover and apply non-exempt assets to satisfy judgments.  When a court finds that you owe someone money, the court will enter a money judgment against you and in favor of your creditor for an amount plus interest.  There is no judgment until the judge signs a document entitled “Judgment” or “Final Judgment.”  The judgment is not immediately effective as there is a 10-day period after the date of the judgment during which either party can request a rehearing.  Rehearing requests are frequently denied, but if a rehearing is requested, the judgment is not effective until the motion for rehearing has been denied.

Obtaining a final judgment by itself does not provide any money to the creditor; nor does the final judgment, by itself, take any of the debtor’s property.  Judgment collection is the process by which a judgment creditor finds and takes the debtor’s property to pay the judgment.  Collecting a judgment is usually referred to legally as the “execution” of a judgment.

After a final judgment, a creditor may obtain a Writ of Execution which entitles the creditor to take steps to collect the judgment.  The Florida Rules of Procedure give the judgment creditor many ways to find (discover) your assets which may be subject to execution.  The process of finding your assets is referred to as “discovery in aid of execution.”

A creditor’s judgment against a Florida resident obtained from a court in another state or another country is referred to as a “foreign judgment.”  A creditor may collect on a foreign judgment from another state by following procedures set forth in Florida Statute §55.501 to domesticate the judgment.  Judgments obtained in foreign countries are domesticated under Florida Statute §55.601.  The foreign creditor must first record a certified copy of the foreign judgment in Florida.  When the foreign judgment is recorded, the clerk of court is required to notify the debtor.  The debtor then has 30 days to contest the validity of the judgment.  There are limited reasons available to contest the recording of a foreign judgment (for example, lack of jurisdiction or fraud).  The debtor cannot retry the case on the merits of the foreign judgment.  A domesticated foreign judgment is enforced as a Florida judgment pursuant to Florida’s laws and rules.

Florida Statutes provide creditors collection tools to satisfy their civil judgments from the debtor’s assets.  These collections tools are subject to very detailed procedural rules.  The following is a summary of creditor collection tools.

Execution and Levy. Execution is a collection remedy used to obtain a debtor’s tangible personal and real property.  Execution and levy is used to seize real estate, stock in corporations, and the debtor’s personal effects.  The creditor can execute against the debtor’s property in possession of a third party.

A creditor must identify the debtor property subject to execution.  The county sheriff executes the writ by seizing the debtor’s property.  The sheriff then auctions the debtor’s property and applies the sales proceeds, less expenses, to satisfy the judgment.  Any preexisting liens on the property must be paid before any money is available to pay the judgment creditor.  The debtor can bid for his own property at the auction.

Assets frequently subject to execution include the debtor’s automobiles, stock in private companies, and valuable home possessions.  Creditors are prone to direct the sheriff to levy upon automobiles which a debtor owns free and clear.  Creditors typically do not levy upon automobiles subject to significant car loans and liens because the procedure is costly and few people will pay significant money to buy a car subject to a lien.

Creditors can use execution and levy against shares of common stock the debtor owns in his own business.  If the debtor states that his privately held corporation has not issue stock, or that the debtor misplaced the stock certificates, the creditor can obtain a court order directing the corporation to reissue stock certificates.

Execution can be used to seize a debtor’s home furnishings.  Because a creditor must direct the sheriff to seize specific items, a creditor cannot get a blanket attachment against “all the stuff” in the debtor’s house.  Creditors cannot break into a debtor’s house and grab property without notice.  However, if the creditor identifies non-exempt assets within the debtor’s house, a court may issue a “break order” to assist the sheriff’s seizure of these assets.  Florida’s homestead exemptions do not shield the debtor’s tangible personal property held inside the homestead.

Garnishment. Garnishment is the most prevalent judgment collection tool used against a debtor’s assets including the debtor’s bank accounts, future wages and commissions, financial accounts holding publicly traded securities, and any debts or rights to money payable to the debtor.  To garnish assets owed to the debtor, a judgment creditor obtains a writ of garnishment from the clerk of court and serves the writ upon the debtor’s employer, bank, financial institution or other person obligated to the debtor.  The creditor is not required to provide advance notice to the debtor prior to serving a writ of garnishment.  A garnishment writ notifies the third party that they must retain an asset or money which belongs to or is owed to the debtor and to thereafter pay the money as the court shall direct.

Money subject to garnishment must be in the actual possession and control of the garnished third party.  The money must be owed to the debtor without condition and the amount owed must be liquidated (fixed) in amount.  In most instances, a writ of garnishment pertains to current debts and obligations owed to the debtor.  Only debts owed to the debtor at the time the writ is served are frozen and subject to garnishment.  The debtor’s salary and wages are subject to continuing writs of garnishment.  A single writ of garnishment served upon the debtor’s employer subjects all future non-exempt wages, salary, and commissions payable to the debtor/employee to the garnishment.  A creditor cannot get a continuing writ of garnishment against payments due by a company to a debtor working as an independent contractor nor for the payment of rent.

How Creditors Find Assets

In a world where there are fewer and fewer secrets, it is more difficult than ever to hide information about your assets.  Technological advances and social media have made it easier than ever for your adversaries to discover your assets and your financial information.

In addition to new technologies, Florida law provides judgment creditors numerous tools to find information about a debtor’s income and assets.  After a creditor locates a debtor’s assets, the creditor can then utilize collection tools (such as garnishment and levy) to seize the asset or force its sale.  More importantly, discovery of assets previously owned by the debtor provides the creditor clues about the debtor’s fraudulent transfers or conversions of these same assets to avoid collection.

Asset protection does not involve hiding assets. People facing the collection of a judgment against them or their business should resist the common urge to hide or misrepresent their assets.  Most of the information a debtor is required to provide a judgment creditor is given under oath.  The debtor must testify about the nature and location of all assets.  Hiding assets, misrepresenting assets, and lying about prior transfers of your assets amounts to perjury.  Perjury not only is a crime, but once discovered it severely diminishes your credibility before the judge.  Judges tend to rule against any party who previously has lied to the court or the adverse party.  A judgment debtor should assume that the judgment creditor will find out all information about assets currently owned and owned in the recent past.

Formal Discovery Procedures. A judgment creditor can use all of the discovery tools made available to parties in general litigation to determine assets subject to execution and levy.  These discovery tools are set forth in the Florida Rules of Civil Procedure.  In addition to the Fact Information Sheet (discussed elsewhere on this website), the creditor may employ all discovery tools provided to litigants in the Rules of Procedure including requests to produce documents and depositions under oath. The creditor is permitted to ask detailed and extensive questions about the debtor’s financial affairs.  The creditor can ask about all assets in which the debtor has any legal or equitable interest including assets owned jointly with a spouse, family members, or business associates.  The creditor can seek discovery directly from third parties such as an examination under oath of the debtor’s spouse.

The debtor must furnish to the creditor all documents the creditor requests related to his financial affairs.  Creditors may properly request documents such as copies of bank statements, check registers, cancelled checks, credit card statements, insurance policy and tax forms.  A creditor’s request can include current documents and documents up to four years old.  The debtor is required to supply the documents requested which are in the debtor’s custody or control.  The debtor does not have to provide documents that the debtor does not have or cannot easily obtain.

In addition to requests directed to the judgment debtor, a creditor has other methods to discover assets.  There are numerous computer services that a creditor attorney can employ to search public records or banking data to locate assets in the debtor’s name.  A skilled creditor attorney will be able to use the broad discovery tools to find out all of the debtor’s assets.  Trying to hide assets, or lying about assets, will create more legal problems. There is no place for secrecy in asset protection planning.

Financial Statements. When an individual borrows money to start a business or personally guarantees the loan to an existing business, the bank requires the individual to submit personal financial information and personal tax returns.  In addition, lenders typically require individual borrowers or guarantors to periodically update their financial statements during the life of the loan and submit copies of annual tax returns.  Many people exaggerate their personal wealth on loan applications.  The lender will use your loan application and updated financial statements to discover assets if you default on the loan.  After obtaining a judgment, the lender can garnish any bank accounts listed on your loan application and updates without notice and can record the judgment in counties where you listed real estate ownership.

In addition, if you attempt to negotiate a modification of a loan prior to default, the negotiation usually involves additional voluntary financial disclosures.  Most lenders insist on current financial statements as a condition of a loan modification discussion.  You probably will be asked to provide your lender current personal financial information without any guaranty that your cooperation will lead to modification or any other settlement.

Creditor’s Informal Contacts. Collection agents who work for institution lenders and large collection agencies develop personal contacts working in banks and other financial institutions.  Collectors also develop contacts with telephone company employees.  The creditor’s personal contacts are an excellent source of financial information about judgment debtors.  Any contact person with access to a company’s computer records can quickly tell a collection agent whether the debtor has a financial account at its institution.  The judgment creditor can then serve a writ of garnishment on any institution which reports an account of significant balance without notice to the judgment debtor.

Investigators and Search Firms. There are companies that provide judgment creditors with asset searches.  Some firms specialize in searching for bank accounts while other firms provide broader searches.  Access to information over the internet has made asset searches easier and more accurate.  Searches of debtors’ bank accounts will produce for the creditor a detailed description of the debtor’s financial accounts including account number, balance, and a history of deposits, checks written, and cash withdrawals.  A professional computer search will show every check the debtor has written including the payee and the amount.  Search companies can also access similar information about securities accounts.

Private investigators have various tools to search for people’s assets.  For example, a private investigator can access your phone records.  The investigator can isolate phone calls to and from toll-free numbers and then use reverse lookup tools to see whether the toll free calls are with financial institutions where you may have assets.  Some creditors employ private investigators to verify if a debtor actually resides at the property the debtor claims as his exempt homestead.

Real estate deeds are filed in the county where the real estate is situated.  Each Florida county maintains its own index of real estate ownership.  In prior years, if a person wanted to know whether a debtor owned real estate in a particular county, he would have to go to the county recorder of deeds and physically search through paper and microfiche records.  Looking for real estate ownership in Florida’s 67 counties was practically impossible because creditors had to know in what counties a debtor might own real property before undertaking a manual search at the recorder of deeds office.

In recent years, Florida counties have converted their legal records to digital format so property ownership is available by online search.  These online records are centrally linked to state and national databases.  Instead of guessing where a debtor might own property, for a small fee creditors can now search real estate records throughout the state with a single query.  Computer searches quickly provide the debtor’s property ownership and other information such as date of purchase, mortgages, and property value. The same property search can identify whether the debtor holds any mortgages on someone else’s real estate to secure a promissory note.  If a creditor finds that a debtor is a mortgagee, the judgment creditor can proceed to garnish the underlying note and payment stream.

Public records can also be used to discover your business interests.  It is difficult to maintain a Florida corporation, limited liability company, or other business entity without public disclosure of your involvement in the business.  Florida pubic records do not include or reveal a debtor’s ownership interest in any particular entity, but they do disclose other information such as if the debtor is an officer or director of a corporation, manager of a limited liability company, or a registered agent.  Most owners list themselves in at least one of those capacities when they file annual reports with the Division of Corporations.  Once a creditor searches the Division’s website and discovers a debtor is involved in the management of a business in some capacity, the creditor will proceed to focus on the debtor’s ownership interests which are ascertainable in tax returns or through the use of other discovery tools.

Proceedings Supplementary

If a creditor cannot satisfy his judgment through garnishment, attachments and some other legal tools pursuant to a writ of execution, the creditor may initiate proceedings supplementary to execution pursuant to Florida Statute 56.29. Proceeding supplementary is the most wide ranging and comprehensive creditor remedy. Proceedings supplementary assists judgment creditors’ satisfaction of their judgments by using a equitable remedies against a variety of types of debtor rights and property which are not subject to garnishment, levy or attachment tools.

For example, proceeding supplementary enable a creditor to seize a judgment debtor’s stock in a corporation, the debtor’s accounts receivable, or his causes of action against a third party. These proceedings may also reach a debtor’s intangible assets such as trademarks or logos. The following is a sample of creditor equitable remedies implemented through proceedings supplementary:

  1. Avoiding fraudulent transfers: Creditors may sue third party recipients of alleged fraudulent transfers in order to reverse the transfer or obtain a judgment against the recipient for the value of property transferred. The Court may enter an order to apply transferred real property to satisfy a judgment or have the sheriff seize fraudulently transferred personal property.
  2. Reversing fraudulent conversion: Creditors may obtain a court order reversing the debtor’s use of non-exempt assets to purchase or obtain an exempt asset if the purchase was intended to protect the non-exempt assets from creditors. An example of a fraudulent conversion is using non-exempt cash to buy an exempt annuity contract.
  3. Piercing corporate veil: Creditor may sue individuals to enforce judgment against a corporation where the corporation has been established to defraud creditors or is merely the debtor’s alter-ego.
  4. Reverse piercing: Creditor sues a corporation to satisfy judgment against an individual who conveyed personal assets to an alter-ego corporation to avoid collection.
  5. Apply for a charging liens against the debtor’s ownership of limited partnerships and limited liability companies;
  6. Issuance of injunctions against the debtor preventing subsequent transfer of the debtor’s property;
  7. Appointment of a court receiver to take possession of the debtor’s property. )Proceeding supplementary is the most wide ranging and comprehensive creditor remedy.)
  8. Enforcement of equitable liens against the debtor’s real property including, when applicable, the debtor’s homestead.

The proceedings supplementary statute gives the creditor the right to compel the debtor to appear in court and testify before a judge or magistrate about the debtor’s assets. The creditor may require the debtor to bring to the court hearing specific documents or property. The examination of the debtor must be set in the county in which the debtor currently resides. The creditor has broad authority to examine the debtor on all matters and things pertaining to the debtor’s personal or business interest, and the creditor may ask any question that, directly or indirectly, may aid in satisfying the judgment. The creditor may also examine third parties who may be the debtor’s “alter-ego” or who may be transferees of the debtor’s property.

A creditor initiates proceedings by filing a motion with the court that issued the final judgment. Proceedings may be commenced at any time during the 20 year life of a final judgment. Proceedings are initiated in the same county where the principal action was maintained.

The court may used proceedings supplementary to reach property either by ordering a sheriff to seize property or by ordering the Florida debtor or third parties to turn over assets located in Florida. The court is authorized to hold the debtor, or others in possession of the debtor’s property, in contempt for ailing to obey any order issued in the proceedings or failing to attend a court ordered examination. However, a court may not require a debtor to turn over assets located in jurisdictions outside the state. The creditor must domesticate the judgment in the foreign jurisdiction and reach such assets through the court proceedings in the foreign jurisdiction.

Proceedings supplementary also provides an independent avenue to reverse a debtor’s fraudulent transfer of personal property. The statute provides that a creditor may order a transferee of personal property to turn over to the creditor any personal property that a debtor conveyed to a spouse, relative, or other insider within one year prior to the initiation of the underlying lawsuit. At least one court has held that the four year statute of limitations applicable to fraudulent transfers  does not apply to actions directed against transfers of personal property in the context of a  proceedings supplementary. A creditor may initiate fraudulent transfer action against personal property transfers at any time during the 20 year life of a Florida judgment.

Abusive Debt Collection

Unmanageable debt can be one of life’s greatest stresses. One of the most unpleasant aspects of personal debt is having to deal with aggressive debt collectors who harass debtors with abusive collection practices. Debt collectors typically are paid on commission based on amounts they collect from you, and too often debt collectors bully and harass people in order to coerce payments regardless of their ability to pay. There are legal protections against coercive debt collectors in the form of federal and state statutes that protect debtors against unfair and bullying debt collection activity. You are not helpless in dealing with overly aggressive bill collectors.

The principal debt collection statutes are the Federal Fair Debt Collections Practices Act (FDCPA) applicable to all U.S. residents and the Florida Consumer Collection Practices Act (FCCPA) which is enforceable by Florida residents. Actions under the federal law are mainly enforceable through federal courts; actions under the Florida law may be brought in Florida’s state court system. The federal law and Florida’s law have similar consumer protections although Florida’s law protects against a wider range of debt collectors. Collectively, the laws will be referred to as “Consumer Protection Acts’ or “CPA.” A consumer debtor may recover money from a debt collector who violates either the federal or state CPA.

Any person who is obligated to pay a consumer debt may enforce the CPA. A consumer debt is an obligation to pay money arising out of transaction for personal, family, or household purposes. Consumer debts include, for example, credit cards, mortgages, rent, auto loans, medical bills, phone bills, and payday advances.  A business has no rights under the CPA to sue someone attempting to collect a debt from a business transaction.

The federal law’s collection restrictions apply only to “debt collectors” who are generally people whose principal business is the collection of money for another person. The Florida CPA offers broader protection as it applies to many types of consumer creditors that collect their own debts. For example, the Florida CPA regulates the collection practices not only of debt collection companies but also common issuers of consumer credit such as credit card companies, mortgage companies, cell phone providers, doctor’s offices, apartment complexes, and automobile finance companies.

CPA laws describe specific prohibited collection tactics that may not be used to coerce debt repayment. Florida law prohibits bill collectors from, among other things, communicating with you or your family with such frequency that it constitutes abuse or harassment, calling your house before 8 a.m. or after 9 p.m., calling you or your employer at your workplace, using profane or abusive language, contacting you after you hired an attorney, pretending to be with a law office, collecting a debt discharged in a prior bankruptcy, disclosing information about your debts to friends, neighbors or relatives, attempting to collect a debt that legally is no longer enforceable, and many other types of conduct reasonably expected to abuse, harass, or bully you into paying money.

The law excuses bill collectors for inadvertent violations. The collector is not liable for offending tactics that are proven unintentional and the result of a bona fide error, notwithstanding procedures adapted to avoid such error.

Legal action against your abusive creditors is designed to both stop their unlawful tactics and may entitle you to a money recovery. Both the federal and state CPA give you the right to sue for actual damages you incur as a result of a debt collection violation. The law entitles you to recover up to $1,000 of statutory damages without proof of actual monetary loss. Under the Florida CPA the court may grant you punitive damages in its discretion. Offending collectors also have to pay all your costs and your attorney fees.

The attorney fee award provision of the CPA laws facilitates your ability to obtain professional legal advice to enforce your rights. Most attorneys will represent you on a contingency fee basis where the attorney will get paid only if you win your case and recover money. The law is designed to provide all victims of creditor harassment a legal remedy regardless of their financial resources to pay an attorney.

It is your responsibility to prove the creditor’s violations of the CPA laws. You enhance your chances of recovering money damages and preventing continued collection bullying by keeping a record of the bill collector’s violations. To start, keep any written correspondence from bill collectors. You should keep a log of collection phone calls that you believe are harassment. Save all voice mail recordings from bill collectors. Caller ID listings on your home phone or cell phone provide proof of the time and frequency of collection calls. Most phones erase caller ID records after a period of time, so you might take a photograph or screen shot of caller ID logs to preserve your records as evidence in a CPA lawsuit.

Although tempting, do not secretly record your phone conversation with an offensive debt collector. You may ask the caller for permission to record the call (and have the party repeat the consent once the recording has started), but recording any phone call without the other party’s consent is a violation of Florida law.

Most importantly, do not wait to enforce your rights against illegal debt collection. The CPA laws provide a limited amount of time to seek legal remedies for collection violations. Generally, as time goes by violations become harder to prove. Seeking legal help promptly after you are harassed increases your chances of recovery and may increase your leverage to resolve your debts.

Learn More About:

Writ of Garnishment: A writ of garnishment allows a creditor to seize money owed to the debtor by third parties.

Wage Garnishment: The tool creditors use to attack money owed to the judgment debtor in the form of wages.

Head of Household Exemption: One of the most common exemptions to garnishment of wages.

Fact Information Sheet: A form that creditors issue to a judgment debtor to obtain personal information and a financial statement.

Deficiency Judgment: What to do about this mortgage lender’s judgment against a borrower for the difference between the outstanding balance of the mortgage note and the value of the property foreclosed.

Federal Agency Collection: How Federal Agencies can collect on judgments against businesses and individuals.

What to Do Next

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