A hard-won judgment in a formal legal dispute is only half the battle. A victorious party may still lose the war if they are not able to effectively enforce their award. To complicate judgment recovery efforts, a debtor may attempt to avoid paying restitution by fraudulently transferring assets to another individual or corporate entity. Collection efforts can also be delayed if the adversary chooses to appeal to a higher court.
Savvy litigants should be prepared to employ one or more of the standard collection methods before a judgment is ever entered. Knowing what tools are available in the arsenal, and the most effective way to use them will save time, effort, and resources in the ensuing post-judgment battle.
The following series of posts will cover what collection methods are available to litigants in New York, and the common legal issues that encompass them. Topics of discussion will include:
Post-Judgment Discovery, which include interrogatories, requests for admissions, or document production requests about the debtor’s assets.
Wage Garnishments, which requires the debtor’s employer to withhold a certain amount of money from their paycheck.
Property Liens and Property Levies on real estate, trade goods, personal property,
Assignment Orders, used to intercept dividends, royalties, commissions, rental income, and other forms of payment;
Contempt Proceedings, which punish judgment debtors who willfully disobey court ordered payments; and
Post-Judgment Interest, which run from the date of entry of the judgment.
New York’s judgment enforcement provisions make the Southern District of New York, with its concentration of international financial institutions, the first choice for litigants seeking to enforce judgments against judgment debtors with far flung assets that would otherwise be difficult and costly to reach.
It is not easy to discover assets, and attention must be paid to every detail. The discovery process can be time-consuming, expensive, and fraught with disappointment for judgment holders who expend considerable resources only to discovery that a debtor has filed for bankruptcy. Knowing how and when to use post-judgment discovery on a debtor and its network (think family members, businesses associates, banking institutions, and employers) is critical to securing a judgment in the most efficient way possible.
There are three main types of disclosure subpoenas available under the CPLR
- A subpoena for personal appearance at a deposition;
- A subpoena to turn over documents (also called a "subpoena duces tecum"
- A subpoena to provide written answers to a set of written questions provided by the creditor. This is called an information subpoena. Here's a quick look at each:
I. Subpoena for Personal Appearance at a Deposition
A disclosure deposition subpoena must give the person to be deposed at least ten (10) days notice of the deposition, unless the court allows a shorter time. Unless waived, the deposition needs to be scheduled during business hours and is subject to the general requirements for location of the deposition and who can serve as the examiner under New York law. The examiner must always be someone authorized to administer an oath (sometimes referred to as an "officer of the court.") Lawyers authorized to practice in New York are officers of the court, as are certain other individuals.
II. Subpoena Duces Tecum
A subpoena to produce documents can be served on the debtor or on an individual, corporation, partnership, limited liability company or sole proprietor doing business in New York.
Once properly served, the person receiving it must produce the documents it requests. When the subpoena is to someone other than the debtor, instead of supplying the original documents requested, they have the option of supplying a transcript of the documents that are relevant to the subpoena.
III. Subpoenas for Information
pSubpoenas for information can be served through the registered mail, return receipt requested. The subpoena needs to be accompanied by a pre-addressed and postage prepaid envelope for the return of the responses. Answers need to be returned within seven (7) days.
A wage garnishment compels the debtor's employer to withhold the nonexempt portion of the debtor's disposable earnings for payment directly to the levying officer. So long as the creditor knows the name and address of the debtor's employer, it is relatively easy and inexpensive to garnish a debtor's wages. One advantage of a garnishment is that it is often the only means available to enforce a judgment, such as where the debtor's other property is exempt or no other property exists which could be used to satisfy the judgment.
There are both federal and state laws governing wage garnishments.
Title III of the Consumer Credit Protection Act (CCPA) is the principal federal law governing wage garnishments. The law sets a limit on the amount of employees' weekly disposable earnings that may be garnished. The CCPA includes a general limit on garnishment, as well as a limit that is applicable only to child and family support orders. The law protects employees from discharge because of garnishment with respect to any single debt, but does not protect employees from discharge if their earnings have been subject to garnishment for a second or subsequent debts.
In New York, CPLR 5231 governs wage garnishments. The law generally permits the garnishment of 10% of the debtor’s gross income. The main drawback of wage garnishments is that, in most cases, at least 90% of a debtor's earnings are automatically exempt from garnishment. Unless the debtor earns a large salary, the creditor will receive relatively little from a wage garnishments, and it could take years to satisfy a judgment in full. Notwithstanding this fact, a debtor who is interested in saving face in front of their employer may be encouraged to pay off the judgment or agree to a voluntary payment plan. Furthermore, if a debtor quits or is fired, the wage garnishments cease.
One common method of enforcing a judgment is by securing a lien upon the judgment debtor's property. In New York, a judgment lien can be attached to the debtor's real estate, or the debtor's personal property. Unlike assets that can be concealed or physically dissipated, the fixed and immovable nature of real estate gives added value to the judgment lien. A property lien extends to all real property located in the county of docketing, which makes it different from the lien of a typical mortgage or mechanic’s lien, which is specific to the single piece of property upon which it is based on.
A property lien has a base period of up to 10 years, measured form the time of the filing of the judgment roll. Unless the creditor releases a judgment early, the debtor tenders the amount due, or the debtor has given an undertaking upon appeal, a lien is discharged prior to the expiration of the base period when the property is sold at an execution sale. Under New York law, all judgment lien creditors are required to be notified of an execution sale initiated by a judgment creditor. In order to recover, however, a judgment creditor must deliver something called an execution to the county sheriff, or risk losing any interest they might otherwise have in the proceeds of the sale.
Although a judgment lien may attach to a debtor’s entire interest in a piece of real estate, a creditor may be limited in enforcing a lien by the homestead exemption. Found in CPLR 5206, the homestead exemption only allows creditors to recover a specific sum of money when executing a judgment on a debtor’s home. If the real estate is located in the five boroughs, the homestead exemption protects $150,000 of the homeowner's equity (or $300,000 if the debtor is married) - which means a judgment creditor can only take the surplus of any amounts recovered over that amount.