Lawsuits are often initiated because one party (the judgment creditor) seeks money from another party (the judgment debtor). While it may sound straightforward, winning a money judgment can be only the first half of a case. The second half is converting the judgment to cash.
Washington law defines a judgment as ”the final determination of the rights of the parties in the action …” and provides that a “judgment shall be in writing and signed by the judge …”. In practice, a judgment is the instrument documenting the amount the judgment debtor owes the judgment creditor. It also authorizes the creditor to collect on the judgment, if the debtor does not voluntarily pay.
The following are a few of the challenges to collect on a judgment:
Judgment Proof. The debtor could lack the resources to pay and be judgment proof. Unless the debtor’s financial condition improves, pursuing collection may be counterproductive. In this case, the costs of pursuing collection often outweigh the benefits.
Bankruptcy. A judgment debtor can file bankruptcy. Bankruptcy can completely discharge the judgment debt or limit the amount the debtor must pay the creditor based on the debtor’s assets and future income.
Exemptions. Every person (this does not apply to business entities) has assets exempt from judgment execution. For example, a debtor may retain up to $6,500 in household goods, a vehicle valued up to $3,250, and a residence (homestead) valued up to $125,000 as assets exempt from creditors. A creditor cannot take these assets. Exempt assets belong to the debtor, even if the judgment is never paid.
On the other hand, the judgment creditor has multiple options for collecting a on a judgment, including:
Conduct a debtor’s exam. A creditor can compel the debtor to court to answer questions about assets and liabilities. If the debtor does not appear, the court may issue a bench warrant for the debtor’s detention until the debtor exam occurs.
Initiate an asset search. Private companies offer a variety of services to locate debtors and their assets. Once assets are located, garnishments and judgment executions are possible (see below).
Garnish. A judgment creditor can garnish wages and bank accounts. Through a wage garnishment, during a 60 day period, the employer pays a percentage of the debtor’s wages toward the judgment. Wage garnishments can be frustrating. The creditor must renew the wage garnishment every 60 days. Bank garnishments require the bank pay to the creditor all non-exempt assets of the debtor in its possession up to the amount of the judgment.
Lien real property. A judgment is an automatic lien on real property of the debtor located in the county in which the judgment is entered. A creditor can register the judgment in other counties and in other states.
Wait. A judgment is good for 10 years and can be renewed for one additional 10 year period. If a debtor is currently judgment proof, waiting often can be a creditor‘s best option.
Execution. A judgment creditor can obtain a court order directing the county sheriff to seize and sell assets of the debtor (e.g. car, house, boat, jewelry). These are public sales with the net proceeds paid the creditor, up to the amount of the judgment.
Charging orders. When a judgment debtor holds an interest in a business entity (e.g. is a member of a LLC or a partnership), the court can issue an order directing that the company pay distributions due the debtor to the judgment creditor. The court can also order the sale of the debtor’s interest in the business entity.
Fraudulent transfers. Some judgment debtors transfer assets to friendly third parties, without sufficient consideration, to avoid loss of the asset to a creditor. While beyond the scope of this article, Washington law permits a creditor to recover the fraudulently transferred assets for payment on a judgment.
Collecting on a judgment can often be a frustrating, time consuming process. While there are a variety of options available to collect a judgment, a creditor needs to be diligent to be able to successfully collect. And, before even commencing the collection lawsuit, the plaintiff should consider the collectability of the judgment.
Attorney Brian A. Walker represents businesses and individuals in commercial, business, and real estate litigation and transactions from the Wenatchee offices of Ogden Murphy Wallace PLLC.