Creditor Collection Methods

How Creditors Collect on Judgments

Judgment collection is an effort by your creditors to collect money damages a court has awarded the creditor in a court judgment. When a court finds that you owe someone money, the court will enter a money judgment against you 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. Effective asset protection planning requires an understanding of tools creditors may use to discover and take your non-exempt assets to collect judgments.

Writ of Execution

The first thing a creditor usually does to collect on a judgment is ask the court to issue a Writ of Execution. A writ of execution entitles the creditor to take steps to collect the judgment. The Florida Rules of Civil 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.

Judgment Lien Certificate

A judgment creditor can obtain a lien of all the debtor’s personal property located in Florida by filing a judgment lien certificate with the Florida Secretary of State. Any subsequent sale or other conveyance of personal property remains encumbered by the judgment lien. Recording a certified copy of the judgment in any county creates a judgment lien on the debtor’s real property located in the same county, other than homestead property.

Out of State Judgments

Creditor collection methods in FloridaA 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. The creditor can enforce the domesticated Florida judgment for up to twenty years.

Execution and Levy

Execution is a collection remedy used to obtain a debtor’s tangible personal and real property. Execution and levy are used to seize real estate, stock in corporations, and the debtor’s personal effects. Assets frequently subject to execution include the debtor’s automobiles, stock in private companies, and valuable home possessions.  The creditor can execute against the debtor’s property in possession of a third party.

A creditor must identify in advance the debtor’s property subject to execution. The county sheriff executes the writ by physically seizing the debtor’s property. The sheriff then sells the debtor’s property at auction. The sheriff 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.

Levy on Automobiles

Creditors frequently direct the sheriff to levy upon automobiles which a debtor owns free and clear. Taking the debtor’s car exerts pressure on the debtor to pay the judgment. Creditors typically do not levy upon automobiles subject to significant car loans and liens because few people will pay significant money to buy at auction a car subject to a lien.

Privately Held Businesses

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 issued stock, or that the debtor has misplaced the stock certificates, the creditor can obtain a court order directing the corporation to reissue stock certificates. The creditor can direct the sheriff to sell the stock at public auction. The creditor may not levy upon the debtor’s membership interest in a multi-member limited liability company. The creditor’s sole remedy is a lien on LLC profit distributions payable to the debtor.

Home Furnishings

A judgment creditor can try to seize a debtor’s home furnishings. Because a creditor must direct the sheriff to seize specific items of personal property, 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 court permission. 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. Some courts will issue break orders without advance warning to the debtor.

Florida’s homestead exemptions do not shield the debtor’s tangible personal property held inside the homestead.

Garnishment of Money

How creditors in Florida find assets to collectA writ of garnishment is used to seize any property owed to the debtor by a third party. Garnishment is used against 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, a judgment creditor initially obtains a writ of garnishment from the clerk of court. The creditor then 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 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.

Wage Garnishment

The debtor’s salary and wages may be subject to continuing writs of garnishment. A single writ of garnishment served upon the debtor’s employer garnishes all future non-exempt wages, salary, and commissions payable to the debtor. The garnishment continues in effect until the judgment is paid.

A creditor cannot get a continuing writ of garnishment against payments other than wages. For example, money payable by a company to a debtor working as an independent contractor, or rents owed to a landlord, are not subject to continuing writs.

Debtors have ways to fight garnishments. Florida law exempts some types of debts from garnishment. For example, wages payable to a head of household are exempt without limitation from continuing wage garnishments. Periodic payments due to the debtor from social security, annuities, and retirement plans also cannot be garnished in Florida.

Garnishment procedures are complicated and are strictly construed in Florida courts. Therefore, some debtors can defeat garnishments by finding procedural flaws in the garnishment writ and application.

How Creditors Find Assets

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 use 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.

A judgment creditor can use all the discovery tools made available to parties in general litigation. In general litigation, the Florida Rules of Civil Procedure give all participants tools to discover information about their opposing party’s case. The judgment creditor may use these litigation discovery tools to find assets subject to execution and levy.

These general discovery tools include requests to produce documents, written answers to interrogatories, and depositions under oath.

The creditor is permitted to ask detailed and extensive questions about the debtor’s financial affairs. For example, the creditor can ask about assets in which the debtor has any legal or equitable interest, including assets owned jointly with a spouse, family members, or business associates. Questions can be about the sale or transfer of assets. The debtor must answer questions under oath and penalty of perjury. The creditor can seek discovery directly from third parties such as an examination under oath of the debtor’s spouse.

Request for Documents

The debtor must furnish to the creditor all documents the creditor requests related to his financial affairs. Creditors may properly request copies of bank statements, check registers, cancelled checks, credit card statements, insurance policies, and tax forms. A creditor’s requests can include current documents and documents up to at least four years old and beyond.

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.

Debtor’s Financial Statement

When an individual borrows money to start a business, or personally guarantees a commercial 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. If a borrower wants to modify a loan to avoid default, the negotiation usually involves additional voluntary financial disclosures.

A 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 your financial statement updates without notice. The lender will record the judgment in counties where the debtor’s financial statements listed real estate ownership.

Cooperation Among Creditors

Collection agents who work for institutional lenders and large collection agencies develop personal contacts working in banks and other financial institutions. 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.

Professional Investigators

Private investigators may perform asset searches as a service to judgment creditors. 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. Search companies can also access similar information about securities accounts.

Private investigators have at their disposal sophisticated methods. For example, a private investigator can access your phone records. The investigator 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 resides at the property the debtor claims as his exempt homestead.

Real Estate Ownership

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 the past, if a person wanted to know whether a debtor owned real estate in a 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.

Nowadays, Florida counties have digitized their legal records so that property ownership is available by online search. Online property records are centrally linked to state and national databases. Instead of guessing where a debtor might own property, for a small fee a creditor can 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.

Business Interests

Public records can also be used to discover your business interests. Florida public records do not include or reveal a debtor’s ownership interest in any particular entity, but they do disclose 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. Ownership is usually revealed through the debtor’s tax returns or through the use of other discovery tools.

Technology and Social Media

Technology advances and social media have made it easier than ever for your adversaries to discover the nature and location of your 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 court can order a debtor to disclose usernames and passwords on social media accounts. People often refer to assets and income in social media discussions. Social media is a revealing source of information a debtors’ finances and things debtors may have done to evade judgment collection.

Hiding Assets

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.

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 widest ranging and most comprehensive creditor remedy. Proceedings supplementary assists judgment creditors’ satisfaction of their judgments by using 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 can allow a creditor to seize a judgment debtor’s stock in a corporation, the debtor’s accounts receivables, or his causes of action against a third party. These proceedings may also reach a debtor’s intangible assets such as trademarks or logos.

A creditor initiates proceeding supplementary for execution by filing a motion with the court that issued the final judgment. The statute requires the creditor to include certain allegations in the motion. Proceedings may be commenced at any time during the 20-year life of a final judgment.

Statutory Collection Tools

Florida Statute 56.29 includes a list of collection tools for proceedings supplementary. A sample of creditor equitable remedies that Florida Statutes allow in proceedings supplementary includes:

  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. Charging Liens: A judgment creditor can apply for a charging lien against the debtor’s ownership of limited partnerships and limited liability companies;
  6. Injunctive Relief: Creditors may seek injunctions against the debtor preventing subsequent transfer of the debtor’s property. The creditor must demonstrate that fraudulent transfers are immanent.
  7. Receivership: In extraordinary circumstances, a creditor may convince a court to appoint a receiver to take possession of the debtor’s property. The receiver manages the debtor’s property and preserves its value during collection procedures.
  8. Equitable liens. A creditor may have a court declare an equitable lien against the debtor’s real property including, when applicable, the debtor’s homestead.

Forced Testimony

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 may compel a third party to explain property the third party has received from the judgment debtor.

Turnover of Property

The court may use 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 failing to obey any order issued in the proceedings.

However, a court usually 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.

Voiding Fraudulent Transfers

Proceedings supplementary also provides an independent avenue to reverse a debtor’s fraudulent transfer of personal property. The statute allows a court to 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 actions against personal property transfers at any time during the 20 year life of a Florida judgment.

For advice about what to do about your current legal situation, give us a call to schedule a consultation.

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

We help individuals and businesses develop and implement a customized asset protection plan to protect your wealth from creditor collection.
Contact us to get started through our contact page or by calling our office at (407) 444-0404.
Alper Law
Creditor Collection Methods
July 5, 2012