by John David “JD” Janicek
While much of a plaintiff attorney’s time and effort on a case will likely be put toward obtaining a judgment, enforcing that judgment can be an equally challenging endeavor. Indeed, a judgment merely grants the prevailing party a right to collect a sum of money. However, the prevailing party must still pull the levers to actually collect—if an agreement as to payment cannot otherwise be reached. To that end, a judgment creditor is permitted to use various tools (many of which are described below) to pursue a judgment debtor’s non-exempt assets. If the judgment debtor has entered bankruptcy, however, an automatic stay may prevent the use of the tools described herein. See 11 U.S. Code § 362(a).
The proper collection tool may vary from case-to-case, and the circumstances often require a judgment creditor to pursue multiple avenues. However, a judgment creditor should avail itself of post-judgment discovery if litigating the case did not create a “complete picture” of a judgment debtor’s assets. A judgment creditor may use “any discovery proceeding authorized by these rules for pre-trial matters” to obtain information to assist in enforcing the judgment before the court that rendered the judgment. Tex. R. Civ. P. 621a. Notably, many of the limitation made applicable to pre-trial discovery do not apply to post-judgment. For example, there is no limitation on the number of interrogatories that may be served on a debtor. See Tex. R. Civ. P. 190.6.
After the judgment creditor determines it has sufficient understanding of a debtor’s assets, if any, one or more of the following may provide a way to collect on the judgment.
A creditor may file an abstract of judgment (“AOJ”) to create a lien on a debtor’s non-exempt real property. Tex. Prop. Code § 52.001. An AOJ must be filed in the county in which a property is located, and it should be filed in multiple counties, if necessary. A lien attaches to property for ten years after the filing—if the underlying judgment remains active. Generally, a lien will remain valid despite an appeal of the underlying judgment, unless a debtor posts a supersedes bond or meets another condition described in Texas Property Code Section 52.0011. Other than in justice courts, the AOJ may be issued by: (1) a judgment creditor or its agents, (2) a creditor’s attorney, (3) the Judge who rendered the underlying judgment, and/or (4) the Clerk of Court. However, an AOJ must always comply with the requirements of Texas Property Code Section 52.003.
One of the primary benefits associated with seeking to collect on a judgment via an AOJ is that it is inexpensive and not particularly time consuming. However, if a debtor is an individual, it may be difficult to locate his/her real property—let alone establish that it is non-exempt. Even so, if a debtor’s real property ceases to be a “homestead,” an AOJ lien remains for so long as the debtor owns it. Fortunately, entities do not possess exempt assets. Thus, all of an entity’s real property is subject to this lien.
Writ of Execution:
A creditor may also seek to collect on its judgment through the issuance of writs of execution. A writ of execution is issued by the Judge who rendered the underlying judgment, and it directs action(s) to be taken in the furtherance of that judgment. For example, a writ may direct a sheriff or constable to levy on a debtor’s non-exempt assets, sell those assets, and apply the resulting proceeds towards satisfaction of the underlying judgment. See Tex. R. Civ. P. 621, 637. Generally, a writ may be issued thirty days after the entry of a judgment, and it can last for thirty, sixty, or ninety days. See Tex. R. Civ. Pro 627, 628. The Clerk of the rendering court must prepare the writ, but it is the responsibility of a creditor to ensure that the writ it executed, appropriately. Tex. R. Civ. P. 629. Once issued, a sheriff or constable is to “call upon” the debtor and have him/her point out non-exempt property to be levied. Tex. R. Civ. P. 637. Once the sheriff/constable collects sufficient non-exempt property, he/she may sell it at public auction— but only after the debtor is provided notice and an advertisement of the sale is published. Tex. R. Civ. P. 646a.
Seeking to collect on a judgment through writs of execution is most effective if the judgment creditor is aware of a specific item that can be levied. Further, if the judgment creditor would like to purchase the asset at the auction, it is not required to bid cash and can instead credit the price against the underlying judgment. Even so, collection through writs of execution is not perfect. For example, a creditor is at the mercy of the levying sheriff or constable. If a judgment debtor is uncooperative, a sheriff or constable may determine it is too onerous to continue. Additionally, if the judgment is later reversed or set aside, a debtor can then recover the property (or value of the property) from the creditor. Tex. Civ. Prac. & Rem. Code § 34.021-022. It is also important to note that a sheriff’s sale only conveys the judgment debtor’s interest in the property to the buyer. Tex. Civ. Prac. & Rem. Code § 34.045(a). It does not, for example, wipe out properly perfected liens in the same. One should carefully read the Rules of Civil Procedure regarding execution that begin at Rule 621.
Writ of Garnishment:
A creditor may also seek to collect on its judgment through writs of garnishment. An application for writ of garnishment is brought as separate action before the same court that rendered the underlying judgment, and a third-party in possession of the judgment debtor’s assets—or who owes the judgement debtor money—should be named as the “defendant.” Tex. R. Civ. P. 658, 659. Typically, the third-party is a bank or similar financial institution. The purpose of a writ of garnishment is to obtain a judgment that requires a party in possession to pay what it owes the judgement debtor directly to the judgement creditor to satisfy the judgment. Although the debtor is not a necessary party, it must be notified of garnishment proceedings. Tex. R. Civ. P. 663a.
Writs of garnishment are often utilized after writs of execution because a creditor must avow that “the defendant does not possess property in Texas subject to execution sufficient to satisfy the judgment.” Tex. Civ. Prac. & Rem. Code § 63.001. Additionally, while a judgment creditor may not garnish a debtor’s wages, directly, wages become subject to garnishment upon deposit with a third-party. Tex. Const. art. XVI, § 28. Furthermore, it is preferable to complete post-judgment discovery before filing an application for garnishment because discovery should identify the debtor’s bank account information and contents. This is because if the third-party “is discharged upon his answer” (i.e. it has no assets to be garnished) the judgment creditor is required to pay the costs of the third-party that correspond to the application. Tex. R. Civ. P. 677. If that is the case, the creditor has wasted time and money for no financial benefit.
A creditor may also seek the appointment of a receiver. A court may appoint a receiver in a lawsuit “to subject any property or fund to [a judgment creditor’s] claim.” Tex. Civ. Prac. & Rem. Code § 64.001(a)(2). A receiver may be appointed upon application of the judgment creditor, or another party. However, “[t]he party must have a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured.” Id. at 64.001(b). “To fulfill this requirement, the party must show a clear right to the property itself or has some lien on it or that the property constitutes a special fund to which the party has a right to resort for the satisfaction of a claim.” 64 Tex. Jur. 3d Receivers § 18. Still, “[r]eceivership is an extraordinarily harsh remedy and one that courts are particularly loathe to utilize.” In re Marriage of Edwards, 79 S.W.3d 88, 96 (Tex. App.—Texarkana 2002, no pet.)
A creditor may also seek to collect on its judgment through a turnover order. A turnover order is a “procedural device by which judgment creditors may reach assets of a debtor that are otherwise difficult to attach or levy on by ordinary legal process.” Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 224 (Tex. 1991). For example, a judgment debtor’s stock holdings, causes of action, or insurance policies may be the subject of a turnover order. A creditor may apply for a turnover order before the Judge who rendered the underlying judgment or as a new lawsuit. In a turnover order, a court may award injunctive relief, order a turnover of property by a debtor, or appoint a receiver. Tex. Civ. Prac. & Rem. Code §31.002. The property may be turned over to a constable, the registry of the Court, or a receiver, but not the creditor, directly. The powers granted by a turnover order can be great; a receiver may be given permission to seize a broad categorization of non-exempt assets and sell them to satisfy a judgment.
This avenue is typically pursued after one or more of the prior described tools have been unsuccessful. However, it is not required that the creditor prove the assets cannot be reached in other ways. Because the authority granted in a turnover order is so substantial, it is a popular method to collect. Furthermore, the prevailing party may recover its attorney fees, making it an even more appealing option.
A creditor may also seek to collect on its judgment through charging orders. Charging orders were designed to protect non-debtor owners of businesses from collection efforts launched against the debtor owner’s ownership interest. Previously, a creditor was permitted to foreclose on a debtor’s ownership/partnership interest in a business. Stanley v. Reef Sec., Inc., 314 S.W.3d 659, 664 (Tex. App.—Dallas 2010, no pet.). However, this practice commonly disrupted the business’ operations (at the expense of other non-debtor owners). Now, a charging order is the appropriate vehicle to collect on a debtor’s ownership interest in a businesses. A charging order permits a creditor to stand in the place of a debtor to collect distributions from any limited liability company or partnership the debtor holds an ownership interest in. Tex. Bus. Orgs. Code §§ 101.112, 153.26. In this regard, a creditor may receive any payments that the debtor would have received, but the creditor does not actually seize an interest in the business—nor is it allowed to operate the business.
Charging orders are not commonly used in judgment collection. There are no procedural rules to guide the application and caselaw is limited. Accordingly, past litigants have considered it best to use it along with other collection methods. Goodman v. Compass Bank, No. 05-15-00812-CV, 2016 WL 4142243, at *10 (Tex. App.—Dallas Aug. 3, 2016, no pet.).
John David (JD) Janicek is a member of Kessler Collins’ complex commercial litigation practice group and has valuable experience representing both creditors and debtors throughout the litigation process.
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