Robert S. Bernstein, Esq.
Managing Partner, Bernstein-Burkley, P.C.
Often times, when we as attorneys suggest the possibility of suit in a collection case, clients are conflicted as to whether they should file suit. It is often stressful to think of spending upwards of $300.00 on suit costs; some clients have compared this to “throwing good money after bad.” While spending the extra costs on suit may not seem worthwhile, obtaining a judgment against a Debtor can certainly provide the client with leverage, ultimately resulting in post judgment collection.
Anytime a new case comes into our office, we make an attempt to learn if the business is no longer operating and if there is not a personal guarantor. In that case, we generally do not suggest suit, as a judgment will not likely lead to collection. If we are able to confirm that we have a viable address for the Debtor, and that the business continues to operate (or there is a guarantor or other asset to go after), suit is most likely the best option for the client.
Once a complaint is filed, a Debtor cannot ignore our demands without the risk of default judgment. After service of a Complaint by the Sheriff or otherwise, depending upon the applicable Rules of Civil Procedure, a Defendant has 30 days to respond to the Complaint, typically by filing an Answer or in certain instances, Preliminary Objections. After 20 days, we provide the Defendant with a Ten Day Notice. Once 30 days pass with no response, we are free to enter a Default Judgment.
Often times, we hear that it is the client’s goal to place a lien on the Defendant’s property. What clients sometimes don’t realize is that a judgment automatically places a lien on all real property owned by the Defendant in the county in which the judgment is filed. There are of course some exceptions, for example, if the property is owned jointly between a husband and a wife and the judgment is entered against only one spouse, no lien rights are created. This lien lasts for five years, but can be renewed for additional five year periods.
Aside from automatically serving as a lien on residential property in the county where judgment was filed, there are several other advantages to obtaining a judgment against a Debtor. Demands coming from an attorney are far more forceful at this stage of the game. This is a useful tool regardless of whether the client chooses to pursue any of the additional remedies listed below. At this stage of the process, making demands is different than it was before suit was filed, as there is now a judgment in place. The leverage in forcing the Defendant to pay is the judgment, which has now affected the Defendant’s credit and real property in the county where the judgment was filed.[related]
Our most popular method of pressing for payment on a judgment is garnishing the Defendant’s bank account. This option is only available if the client has banking information on hand. The costs associated with garnishment are typically $150.00 and include filing fees and Sheriff’s service upon the Bank. After service, the Bank has 30 days to respond to our interrogatories. If no response after 30 days following service, we are free to move for a judgment against the garnishee. As soon as the Bank is served with our interrogatories, the Defendant’s bank account is “frozen.” Often, this will result in us being contacted by the Defendant. Regardless of whether contact is made, when we are in receipt of answers to our interrogatories, we are free to enter a judgment against the Bank for the amount the Bank admits to owing our Defendant in the answers. Note that individuals are entitled to a $300.00 exemption, which is ordinarily automatically deducted from the Garnishee’s answers.
Another method of execution available to the client after filing judgment is a writ of execution directed toward the Defendant’s personal property. The cost of filing and serving a writ of execution is approximately $350.00. Because of the cost associated with an execution, executions should be used only when there is money or property owned by the Defendant (individually, not as a tenant by the entirety) that can be seized to satisfy a judgment. After the writ is filed, the Sheriff has 90 days to service and levy upon the writ.
There are two types of executions, real estate and personal property levies. Personal property is considered non-real estate property such as automobiles or household furnishings in the case of individuals. In the case of a business, personal property may include equipment, office furniture, computers, and inventory. When an execution is issued to the sheriff for personal property, there need not be a description of the specific property to be seized. Personal property is tagged for purposes of identification when an execution on personal property is issued. The sheriff must post and publish a Notice of Sale advertising when the property will be sold. A representative from the Plaintiff must be present at the sale.
Personal property may be subject to exemptions. If a property claim is filed, the sale will not proceed before a determination is made on the claims. However, in most instances, the client isn’t scheduling the sale to obtain the goods; rather the client is hopeful that the sale will lead to payment of the Judgment. Property claims do not solely apply to individuals. Even in this instance of a sale of business property, a secured creditor, such as a bank or other lending institution, might have a security interest in the assets of the business, which may take precedent over an execution. Therefore, it is important that a UCC filing check be made on any business before executing on any of their assets to determine if there is a security interest in the name of a secured creditor.
Although suit can be a little costly, depending on the amount of a client’s claim, suit is usually worthwhile, as the benefits normally outweigh the risks. Obtaining a judgment provides us with leverage that is far more likely to result in collection. Patience, along with a little time and money can go a long way in the collection world.
For additional information on perfection of security interests and the usage of other credit enhancements, please see the other articles in this Publications section.