Asset Freezes — When Court Can Freeze Defendant’s Assets During Litigation And Prior To Final Judgment

Debtors fear court imposed asset freezes prior to judgment. If a creditor can convince a court to freeze a debtor’s assets after the creditor files a lawsuit but before the cases is decided and judgment is entered the debtor cannot engage in further asset protection planning. For instance, a court ordered injunction against the debtor or the debtor’s financial accounts could prohibit the debtor from buying a Florida homestead even though the homestead could not be reversed under fraudulent transfer laws. Many of my clients over the years have asked me if their creditor could obtain a court ordered asset freeze during their civil litigation.

The answer is legally complicated and depends on nature of the underlying civil action and specifically, what  relief  the creditor is asking for and/or is authorized by statute to obtain against the defendant. The U.S Supreme Court ruled that a court may not freeze a defendant’s assets when the plaintiff is seeking monetary damages. The Court held that a court does not have the authority in an action at law brought by a private plaintiff to freeze a defendant’s assets to preserve the assets for collection of potential money damages. Federal appellate courts have pointed out that the Supreme Court’s holding does not bar courts from freezing asset to preserve them for equitable remedies. Freezing assets is a well accepted equitable remedy to “preserve the status quo” and is proper in a lawsuit seeking equitable relief.

Asset freezes are most common in actions brought by federal agencies because the underlying enforcement statutes typically grant the government broad equitable remedies. I have  represented several clients whose assets were frozen during litigation with government agencies.