In most cases a Court Judgement is no more than a government document entitling a winning plaintiff to take a losing defendant’s property to satisfy a debt (the government being the judicial branch). However, official it may appear, a court judgment is only a piece of paper. It is not money.
This is something well worth remembering if you are thinking about suing someone who owes you money, whether the money represents an unpaid loan, the cost of redoing a remodel gone wrong, or getting back what you lost in a scam, to name a few examples. The chances of winning may not be as significant as the chances of getting your hands on the money after you’ve won. There is little sense in spending money to obtain a judgment against someone who is judgmentproof - a person without income or non-exempt assets. Exemptions are explained below.
So, let’s assume you did your homework before you sued and concluded the defendant had sufficient income and assets to pay you. Now you have emerged victorious from the courtroom after the trial and obtained a judgment against him. What does your lawyer do with the judgment to turn it into money?
Perhaps the simplest and quickest first step is to record an abstract of the court judgment in the County Recorder’s Office, the same place where deeds are recorded. The abstract is a summary of the judgment, identifying the judgment creditor(the winning plaintiff) and the judgment debtor (the losing defendant), and stating the amount of the judgment and the date it was entered. Recording the abstract creates a lien on any real property owned by the judgment debtor within the county.
The lien is like a mortgage. If the judgment debtor has a house or other real property in the county and tries to sell or refinance it, he will first have to pay off your judgment. If you think the judgment debtor may have real property in other counties, your lawyer should record the abstract in each one.
If the judgment debtor is a garden variety employee and you know his place of employment, the next step would be to garnish his paycheck. This is accomplished by obtaining a garnishment order from the Court (traditionally called a writ), and instructing the sheriff to serve it on the employer. The judgment debtor gets a copy.
The employer must then withhold a legally prescribed portion of each paycheck the judgment debtor otherwise receives. The portion prescribed may be modest, but it is better than nothing. The employer must then give the withheld money to the sheriff, who in turn gives it to your lawyer. Before the sheriff does so, the judgment debtor may ask for a Court hearing to challenge the garnishment.
If the judgment debtor is not a regular employee of a business, but an independent contractor working for a business, instead of a garnishment order the judgment creditor must obtain a charging order from the Court to get any money owed to the judgment debtor by the business, perhaps commissions from his broker if the judgment debtor is a real estate agent.
Property in the Debtor’s possession can be taken to satisfy the judgment based on the judgment alone, without a garnishment order or a charging order. The judgment creditor’s lawyer simply instructs the sheriff to seize the property, and then turn it over to the lawyer. The seizure is called a levy. The judgment debtor may also ask for a court hearing to challenge a levy, based on an exemptionfor the property.
Exemptions are categories of money or things which cannot be levied upon to satisfy a judgment, such as “tools of the trade,” disability payments, and up to a certain amount of the value of an automobile. (These exemptions are the same things the judgment debtor would be allowed to keep if he filed bankruptcy, although in bankruptcy a debtor has a choice between a state list of exemptions and a federal list.)
For example, if the judgment creditor levies on an automobile whose value exceeds the automobile exemption, when the automobile is sold the exemption amount must be turned over to the judgment debtor from the proceeds. Similarly, if the judgment creditor levies on tools, at the judgment debtor’s hearing the judge will determine whether some or all of them are tools of his trade. If the judge rules in his favor, the tools must be returned.If the judgment creditor doesn’t know where the judgment debtor works, where his checking and savings accounts are, or what personal property he has and where it is, the judgment creditor may ask the judge to order the judgment debtor to come to court for a debtor’s examination conducted by the judgment creditor’s lawyer. The judge will hold the judgment debtor in contempt and jail him if he refuses to answer the lawyer’s questions. If the judgment debtor doesn’t show up, the judge will issue a warrant for his arrest.
Levying on a home owned by the judgment debtor presents special problems because of the California homestead exemption. The sheriff can’t seize the house the way he can seize an automobile, so the levy consists of affixing a notice of levy to the front door. Here a court hearing is always required. The judge must determine if the mortgages on the property plus the applicable homestead exemption exceed the property’s fair market value by a significant amount. If they do not, the house cannot be sold to satisfy the judgment.
Contrary to what many people appear to believe, property held in a living or “revocable” trust is not insulated by the trust from levy by a judgment creditor of the trustor (who normally is also the trustee). Insulation can only be provided by placing the property in an irrevocable trust. While the trustor/trustee of a revocable trust can remove or contribute property from or to the trust as he sees fit, the trustor of an irrevocable trust (who is normally not the trustee) cannot get his hands on the trust property any more than his creditors can. For this reason irrevocable trusts are uncommon.
If you have a court judgment you are trying to collect, please contact me and I will be happy to assist you.
Stanley D. Prowse is a Civil Litigation Attorney practicing in the greater San Diego area.