Hey! That’s Not Yours! Collecting on Liens and Judgments Part 1
Part 1: Enforcing Judgments in Texas
So you’ve successfully obtained a judgment against a debtor. Now what? After investigating and locating the debtor’s assets via formal discovery or informal methods like database searches, a judgment-creditor can develop a plan for enforcement and collection. There are several tools a judgment-creditor can employ to collect on a judgment. Absent an agreement for payment between the judgment-creditor and judgment-debtor, the law allows the use of judgment liens (abstracts of judgment), writs of execution and garnishment, and turnover proceedings depending on the circumstances.
Judgment Liens. A judgment lien should be perfected as soon as possible after entry of a judgment to avoid subordination to other liens against the debtor’s property. Once properly recorded and indexed, an abstract of judgment constitutes a lien on all of the debtor’s nonexempt real property in the county of recordation, including real property which is acquired after the abstract is recorded. An abstract should be filed in each county in which the creditor seeks to enforce the judgment lien. In Texas, judgments remain valid for ten years from the date of entry, subject to renewal and revival in certain cases. (1) Judgment liens are similarly valid for a period of ten years from the date of recordation, provided that the judgment does not become dormant. (2) Judgment liens can be incredibly effective collection tools – they are relatively simple and inexpensive. However, debtors can attempt to avoid judgment liens through bankruptcy. An extreme example is illustrated in Pennzoil Co. v. Texaco, Inc., in which judgment-creditor Pennzoil perfected a judgment lien against judgment-debtor Texaco in every county in Texas, ultimately resulting in Texaco’s filing of Chapter 11 bankruptcy. Abstracts of judgment must strictly comply with the property code’s statutory requirements to create a valid judgment lien.
Writs of Execution. A writ of execution directs for the seizure and sale of a debtor’s nonexempt property (real and personal) and the application of the proceeds of any sale to the judgment balance. The writ directs a sheriff or constable of the county in which the property to be seized is located to levy the writ on subject property and execute its seizure and sale. Best practice for a judgment-creditor is to investigate, locate, and determine the specific property to be seized pursuant to a writ of execution in order to aid the constable or sheriff. Writs of execution are generally only issued by a court after the judgment becomes final (30 days), but in some cases, courts may issue a writ earlier – e.g., when the judgment-debtor has acted to remove the property from the county with the purpose of hiding or shielding it from creditors. The form of writs of execution as well as the seizure, sale and in some cases, the return of property to the debtor (replevy) are also strictly governed by rules of civil procedure and statute. Additional particularities apply to different types of property.
Writs of Garnishment. A post-judgment writ of garnishment allows a judgment-creditor to garnish the nonexempt money or property held by a third party (a garnishee) on behalf of (and owned by) the judgment-debtor. A common example is the garnishment of funds held in a bank account in the debtor’s name. A writ of garnishment is considered an extraordinary remedy, and is only available when an application shows: (1) the creditor owns a valid, subsisting judgment against the debtor; (2) the debtor has not filed a bond halting execution on the judgment; and (3) the creditor submits an affidavit which states that after a diligent search, it does not believe that the debtor possesses any property in Texas subject to execution which would satisfy the judgment. In some cases, creditors may be held liable for damages for wrongful garnishment where one of the these statements is untrue, or where the creditor acts maliciously. A garnishment action is a separate, but ancillary, suit from the suit in which the underlying judgment was rendered, and is brought against the garnishee as defendant. A writ of garnishment directs the garnishee to freeze or hold the judgment-debtor’s assets in its possession which would satisfy the judgment. The judgment-debtor is notified after service of the writ upon the garnishee. The contents of the writ must strictly comply with the rules of civil procedure, and a faulty writ or one based on an incorrect or incomplete application is insufficient to effectuate the garnishment of the debtor’s property. Creditors who seek to use a writ of garnishment to collect a judgment balance should be very careful to ensure that the underlying judgment is valid and that their application is correct. After service of the writ on the garnishee, if the creditor is unsuccessful in seizing the property due to a default in the writ or judgment, the debtor is free to remove the property from the garnishee’s custody.
Turnover. The collection of a judgment through court proceeding is referred to as turnover. A turnover proceeding is useful where the creditor cannot reach the debtor’s property via a judgment lien, writ of execution, or garnishment. An application for turnover may be filed at any time after a final judgment is rendered – a creditor is not required to exhaust other post-judgment remedies first. Unlike an application for a writ of garnishment, an application for turnover may be filed in the original case in which the judgment was rendered or as a separate suit. A successful turnover proceeding results in the appointment of an agent of the court and a court order directing the debtor to turn over information and nonexempt property to the agent in satisfaction of the judgment. A debtor who refuses to comply with the order may be held in contempt. If the court appoints a receiver, the turnover order imbues the receiver with the authority to seize and sell the debtor’s property, and apply the proceeds to the judgment balance, without the additional involvement of the court. Many creditors prefer to use a turnover to collect on a judgment, but should consider cost when deciding whether to do so – a receiver is generally permitted to take a fee out of the assets seized, on top of the judgment balance. In cases where the judgment debtor may not have assets sufficient to satisfy the entire judgment, the receiver’s fee could diminish the creditor’s recovery.
What if you obtain a judgment in another state, and the judgment-debtor has nonexempt property in Texas? In part two of this series, we will compare two methods used to domesticate foreign judgments – the Uniform Enforcement of Foreign Judgments Act (UEFJA) and the filing of a lawsuit seeking enforcement.
Kuiper Law Firm, PLLC offers comprehensive collection solutions for businesses. If you have any questions about the information in this article and how it applies to your business, do not hesitate to contact us.
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