How Do Creditors Collect Judgments?
When a creditor sues you in court and wins, he then has a “judgment” against you and can take certain actions to collect the judgment amount from you. The creditor is then called a “judgment creditor” and you are a “judgment debtor”. Judgment creditors have several different ways to take your property and how creditors collect judgments may vary somewhat from state to state. However, every state has laws that prevent judgment creditors from taking all of your money and belongings. Every state has laws that “exempt” a certain amount of value in an asset, which means it’s off-limits to your creditors. The law recognizes that even if you have unpaid debts, you and your family still need to eat, keep a roof over your heads, and clothe yourselves. That being said, judgment creditors have many more collection techniques available to them than do creditors trying to collect debts without going to court.
How Creditors Collect Judgments:
The most common methods judgment creditors to collect their judgments from judgment debtors include the following:
Wage Attachments (Garnishments)
A garnishment is a very effective way for a judgment creditor to collect the debt if you receive regular pay and the creditor knows where you work. (The judgment creditor can arrange with the court to hold a judgment debtor examination, where its attorney can ask you questions under oath to get that information.) The judgment creditor then applies to the court for an order of garnishment, which is served upon you and your employer. You do have a right to contest the garnishment at a hearing, but your reasons for contesting it must be pretty solid for that to work. Your employer takes a portion of your wages each pay period and sends that money to the court, which forwards it on to the creditor before you ever see it.
Generally, the law allows a judgment creditor to take no more than 25% of your net earnings. “Net earnings” are your gross earnings minus all legally mandated deductions, such as withheld income taxes. At least in Ohio, you can only be garnished by one judgment creditor at a time. If a creditor starts garnishment proceedings at a time when you are already being garnished by another judgment creditor, the second one will have to wait until the first one’s judgment is satisfied. The only exception to this rule of one at a time is in the case of special garnishments, such as child support or IRS levies. If you have either a child support obligation or a levy on unpaid taxes, a judgment creditor can still maintain a wage garnishment so long as the garnishment payments combined do not total more than 25% of your net earnings.
A judgment creditor’s garnishment of your earnings can be immediately stopped if you file a bankruptcy, and any monies that have not yet been sent on to the creditor by the court will be returned to your employer and disbursed to you.
A judgment creditor can also file with the court for an order directing your bank to seize and send it the money in your bank accounts. Again, this only works when the judgment creditor knows what bank your accounts are in, which is a possibility if you have previously issued checks to this creditor before defaulting on the balance due. Again, you have the right to contest the bank attachment, but will need a very strong reason to defeat it going through. Another thing to keep in mind is that as long as your name is on the account, the judgment creditor is going to be able to attach it completely, even if you share ownership of that account with another person, such as a current spouse. That other person does not have to be legally liable for the judgment debt — his/her money will still be taken by the judgment creditor.
Generally, the only ways to defeat a bank attachment are when the money in the account came from Social Security or another public benefit source, child support, or if you file a bankruptcy.
Another collection method that judgment creditors commonly use is to file a certified copy of the court judgment they received with the clerk of the common pleas court in the county in which you own real estate. The filing of that judgment creates a lien on your real estate, often called a “judgment lien”. This lien stays on your property for 10 years in Ohio, after which it can be revived by the judgment creditor. This type of lien is usually subordinate to your mortgage lien, which means that the judgment creditor cannot receive any money until the mortgage loan is paid off in full.
The judgment creditor knows that eventually you will be selling or at least refinancing your property, and at that time the title must be cleared (all liens must be satisfied and removed) before the deal can close. Keep in mind that the judgment granted by the court called for interest to be added to the amount you originally owed, which means the interest keeps being added on until the full amount is paid off. So the judgment creditor is protected to some extent for the time it waits for either the sale or the refinancing.
Many times, judgment liens can be removed by a specialized process after the filing of a bankruptcy.
Though not used as frequently as the above collection methods, a judgment creditor with knowledge of some valuable item of personal property that you own can go after it by getting a “writ of execution” from the court. A sheriff would then “levy” on that asset by taking possession of it from you or someone else who holds it for you. It could be expensive jewelry or a collection worth a considerable sum of money. The asset would then be sold, and the judgment creditor could collect the amount you owe.
It’s even possible for a judgment creditor to get an order to levy some asset that you don’t have currently but will have in the future, such as an anticipated tax refund or the loan value of an unmatured whole life insurance policy, although this is very rarely used.
These types of items will generally not be protected by state or federal exemptions, and therefore the only protection to be achieved through the filing of a bankruptcy is that the money received from the sale of these assets would be disbursed to all your unsecured creditors rather than just the judgment creditor, and therefore free you from all your debts.