Collecting Your Money

Each year thousands of individuals, businesses and financial institutions (creditors) utilize the legal process to file suit to collect monies owed to them. Once a judgment is entered, a creditor must then wait the statutory 21-day appeal period before taking post judgment collection action against the debtor. There are several options available to creditors after judgment is entered, some of which are more effective than others. A short summary of these options follows.

Garnishment is the most often utilized means of collecting a judgment. A wage garnishment will recover about 25% of a creditor’s net pay each pay period, subject to Federal poverty regulations, and so long as a prior wage garnishment is not already in effect. Recent changes to the law now keep the wage garnishment in place until the judgment is fully paid. In the past, new garnishment writs had to be filed by the creditor every several months in order to maintain priority over other garnishments. Bank accounts can also be garnished and can result in full payment of the debt, provided there are sufficient funds in the account when the writ is received by the financial institution. For corporate debtors, accounts receivable and other periodic payments may be garnished.  For individual debtors, State of Michigan tax refunds can be garnished and can also result in the judgment being fully paid provided the refund is high enough.

Seizure orders make up the next most common means of judgment collection. This order directs an authorized Court Officer to actually make personal contact with the debtor and seize non-exempt assets in an amount the court officer believes sufficient to satisfy the debt. Vehicles, motorcycles, boats, or other equipment owned by the debtor are the most common types of assets seized. These assets are then auctioned off and the proceeds, less the court officer and auction fees, are paid to the creditor.  For corporate debtors  there are no statutory exemptions and the court officer is free to take any and all assets owned by the entity.

Judgment liens are a fairly new option available to creditors. This lien is recorded with the register of deeds under the name of the debtor, and attaches not only to real estate currently owned by the debtor, but also any future real estate owned by the debtor during the life of the lien. A judgment lien remains in effect for five years, and may be renewed for one additional five-year period. These liens are particularly effective where the debtor needs to re-finance an existing  home or obtain a first time home loan. Counsel frequently receives telephone calls from title offices looking to obtain a payoff of the lien where the debtor is looking to sell or re-finance a home.

It should be noted that the above judgment collection actions can be taken without notice to the debtor, so as to take the debtor by “surprise”. Obviously this is necessary in order to keep the debtor from hiding assets, shifting or liquidating accounts. When all else fails, a debtor exam subpoena is the last option available to the creditor. This subpoena requires the debtor to come into court, be placed under oath and then questioned by the creditor/counsel regarding the debtor’s assets, income and general ability to pay. Information gleaned from these exams can then be used to further pursue the collection options outlined above. Of course, once served with the subpoena requiring their attendance in court at a later date, the debtor is aware of the creditors efforts to collect which often leads to the debtor liquidating accounts or transferring assets in an effort to become “judgment proof.”

Creditors should consult with their counsel regarding the most effective means to collect their judgments. In the collections world, persistence pays off and it is usually the most diligent creditor that gets paid.

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