How Creditors Can Collect

By Douglas A. Crowder
Copyright © 2012.  All Rights Reserved

CERTIFICATION.  The author has been approved by the State Bar of California as an MCLE Multiple Activity Provider. (Provider Number 13474.)  The author certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.  This activity qualifies for one (1) hour of self-study MCLE credit, which can be earned by reading the following article and answering the accompanying test questions.
EDITOR’S NOTE:  This article was written in 2012.  The dollar amount of exemptions has been increased since then.  You should check the current versions of the code sections cited before relying on them.

When advising a debt relief client, one of the options is to “do nothing,” or let the creditors obtain judgments.  This may be a good option if the client is “judgment proof.”  This article will describe ways a creditor can collect, so that you can advise your client whether he is judgment proof.

  1. PRE-JUDGMENT WRIT OF ATTACHMENT

In some circumstances, a plaintiff can obtain a writ of attachment, which will allow the seizure of holding of the defendant’s property, prior to the entry of a judgment.

An attachment may be issued only in an action on a claim for money based upon a contract, express or implied, where the total amount of the claim or claims is a fixed or readily ascertainable [CCP 483.010(a)]

If the action is against a defendant who is a natural person, (meaning a human, rather than a corporation or other business entity) an attachment may be issued only on a claim which arises out of the conduct by the defendant of a trade, business, or profession. An attachment may not be issued on a claim against a defendant who is a natural person if the debt is primarily for personal, family, or household purposes. [CCP 483.010(c)]

If a writ of attachment is available, the plaintiff can apply for a writ of attachment upon the filing of the complaint or at any time thereafter [CCP 484.010] To obtain a writ of attachment, the plaintiff must submit an application showing that the plaintiff on the facts presented would be entitled to a judgment on the claim upon which the attachment is based. [CCP 484.030]

After a hearing, the court may issue a right to attach order if it finds that the plaintiff has established the probable validity of the claim upon which the attachment is based. [CCP 484.090(a)(2)]

Unless a plaintiff can obtain a pre-judgment writ of attachment, the plaintiff cannot collect from the defendant until the creditor obtains a judgment.

  1. WHEN CAN A JUDGMENT BE ENFORCED?

A judgment is enforceable as soon as it is entered (meaning signed by a judicial officer and filed with the court [CCP 683.010].

A judgment can be enforced for a period of 10 years after the date of entry.  Upon the expiration of 10 years, all enforcement procedures shall cease, and any lien created by an enforcement procedure is extinguished. [[CCP 683.020]

Prior to the expiration of the 10 years, the judgment creditor can obtain a renewal of the judgment for an additional 10 years period.  [CCP 683.120]

3. ABSTRACT OF JUDGMENT Once a creditor obtains a judgment, the creditor can record an “Abstract of Judgment” with the county recorder, which creates a judgment lien on any real property owned by the debtor in the county where the abstract is recorded.  [See CCP 697.060(a), 697.310]

4. WRIT OF EXECUTION

A writ of execution is essentially a court order requiring a levying officer (usually the sheriff) to seize money or property belonging to the debtor for the purpose of satisfying a judgment

Once a creditor obtains a judgment, it can obtain a writ of execution on any property of the debtor that is not exempt.  [CCP 695.010]

a. BANK LEVY

The most frequently seen type of execution, at least for consumer debtors, is the bank levy.  When a notice of levy is served at a bank’s central location, it essentially freezes any accounts the debtor may have at that bank.  [See CCP 700.140]

The same is true of any safe deposit boxes the debtor may have at that bank.  [CCP 700.150]

How does the judgment creditor find where one’s bank account is?  I have no idea, but here are some possibilities:

The creditor might just serve a levy on all of the major banks in town, hoping that you have an account at one of them.

If the judgment creditor is a bank, it may have connections with other banks allowing it to do a search for accounts.

When I practiced in another city, I knew a process server who claimed to have a girlfriend working for each of the major banks in town, and if he was working on collecting a judgment, he would just call each of his girlfriends and ask if the judgment debtor had an account at that bank (I’m not recommending this procedure, just relaying what was told to me.)

b. SEIZURE OF PERSONAL PROPERTY

If you have personal property (meaning any type of possession other than real estate), a creditor can have it seized and sold.  This could happen, for example, if you owned an expensive car free-and-clear, or had gold coins in a safe deposit box.  This also happens rarely with California consumer debtors.  It is more likely to happen with business debtors.

c. ACCOUNTS RECEIVABLE

If a judgment debtor is owed money by a third party, a writ of execution cn be served on the third party, requiring that party to turn over any funds owed to the judgment debtor.  [CCP 700.170]

5. WAGE GARNISHMENT

If the judgment debtor works as an employee, that is, for wages or a salary, the judgment creditor can use a wage garnishment to get a portion of the debtor’s take-home pay.

Federal law limits the amount that can be taken through a wage garnishment to the lesser of (1) 25% of his disposable earnings or (2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum hourly wage in effect at the time the earnings are payable.  [15 U.S. Code Sec. 1673(a)]  This limitation is also adopted by California code [CCP 706.050].

Generally, once a plaintiff has a judgment, the court has no authority to make the plaintiff take a payment plan.  However, in California, a court does have authority to limit the amount a creditor can take through a wage garnishment.

Under California Code of Civil Procedure, 706.051, the debtor is entitled to keep “the portion of the judgment debtor’s earnings that the judgment debtor proves is necessary for the support of the judgment debtor or the judgment debtor’s family…”

If the debtor wants to reduce the amount of the garnishment, the debtor must, within 10 days of receiving notice of the garnishment, fill out a Claim of Exemption and a Financial Statement, which are judicial council forms available online.

In determining an exemption based upon the needs of the judgment debtor and his family, the court takes into account all property of the judgment debtor and his family, whether or not the property is exempt from the enforcement of the judgment [CCP 703.115]

6. JUDGMENT DEBTOR EXAM

With a “Judgment Debtor Examination” a judgment creditor may require a debtor to appear in court and answer questions about his or her assets.  If a creditor has a judgment against you, the creditor can get a court order requiring you to appear in court “to furnish information to aid in enforcement of the money judgment” [CCP Sec. 708.110(a)] – in other words to testify about your income and assets.

Judgment debtor examinations are intended to allow the judgment creditor a wide scope of inquiry concerning property and business affairs of the judgment debtor, and to leave no stone unturned in the search for assets which might be used to satisfy the judgment. [U.S. v. Feldman, C.D.Cal.2004, 324 F.Supp.2d 1112]

a. PERSONAL SERVICE REQUIRED

In order to be effective, this order must be personally served on you at least 10 days before the date set for the examination. [CCP Sec. 708.110(d)]

As a practical matter, the creditor will probably try to serve you at least 20 days prior to the examination. This is because the creditor will usually want you to also bring in your bank statements, wage stubs, tax returns, and any other documents relating to your financial affairs. This is done by serving you with a “subpoena” for you to bring documents with you, which must be served at least 20 days before the examination. [CCP Sec. 1987]

b. CONTEMPT

If the order requiring you to appear for an examination was properly served on you, and you fail to appear, the court may issue a warrant to have you brought before the court to answer for the failure to appear and may punish you for contempt. Also, the court may award reasonable attorney’s fees to the judgment creditor. [CCP 708.170(a)(1)]

(Creditors must, however, use caution in ensuring that the debtor was properly served, because anyone who “willfully makes an improper service of an order for an examination which subsequently results in the arrest … of the person who fails to appear is guilty of a misdemeanor.” [CCP 708.170(b)])

Willfully failing to bring the documents requested, or refusing to answer questions at the examination could also result in a finding of contempt. [CCP 1209(a)(5) and (a)(9)]

A person found guilty of contempt may be fined up to $1,000 or imprisoned for a maximum five days, or both, and ordered to pay the attorney fees and costs incurred by the party initiating the contempt proceeding. [CCP § 1218(a)]

c. WHO MAY ATTEND A JUDGMENT DEBTOR EXAMINATION?

A judgment debtor examination is a public proceeding from which the public may not be excluded, rather than a private proceeding. [Nebel v. Sulak (App. 4 Dist. 1999) 87 Cal.Rptr.2d 385, 73 Cal.App.4th 1363] Thus, you could be questioned in front of a courtroom of people, or with anyone present that the judgment creditor wanted to be present.

d. FREQUENCY OF EXAMINATIONS

The judgment creditor does not have the right to serve you with frequent orders to appear, for example, once a week. If you have not been examined in the last six months, the creditor can obtain an order for you to be examined without any showing of need. [See CCP Sec. 708.110(b)]. If the creditor wants to examine you again before six months have elapsed, it must make a showing to the court of “good cause for the order.” [CCP Sec. 708.110(c)].

e. WHERE MUST THE EXAMINATION BE HELD?

Normally, the examination is held in the court where the judgment was entered. [CCP § 708.160(a)] However, you may not be required to attend an examination outside the county where you reside or have your place of business unless the place of the examination is less than 150 miles from your residence or business. [CCP § 708.160(b)]

Moreover, under the Federal FDCPA, a debt collector may not bring any legal action on a debt against a consumer outside the judicial district where the consumer resides, possesses real property or signed the contract sued upon. [15 USC § 1692i]

f. SCOPE OF EXAMINATION

Because the purpose of the examination is to ‘compel the judgment debtor to give information concerning his property, the judgment creditor is accorded ‘the widest scope for inquiry concerning property and business affairs of the debtor. [Young v. Keele (1987) 188 CA3d 1090, 1093, 233 CR 850, 852; Marriage of Sachs (2002) 95 CA4th 1144, 1159, 116]

There are, however, limits on what the creditor can ask at such an examination. For example, a debtor can refuse to answer questions that would violate his constitutional right against self-incrimination, or violate the attorney-client privilege. Also, the debtor’s right of privacy should prevent questions concerning the debtor’s private life which are unrelated to the debtor’s financial affairs. [Hooser v. Super.Ct. (Ray) (2000) 84 CA4th 997, 1002, 101 CR2d 341, 345]

g. EXAMINATION OF THIRD PARTIES

A creditor can also obtain an order for third persons to appear for examination if the creditor can show to the court’s satisfaction that the third person is in possession or control of property in which you have an interest, or owes you more than $250. [CCP § 708.120]

h. TURNOVER ORDERS

At the conclusion of the examination, the court may order you, or a third party who owes you money, to turn over cash or other non-exempt property directly to the judgment creditor. [CCP Sec. 708.205(a)] At these examinations, judgment creditors typically ask debtors how much cash they have on their person, and then get a court order requiring it to be turned over.

i. BANKRUPTCY

If you file any type of bankruptcy prior to the date on which you must appear for the examination, you may not be required to attend the hearing because a bankruptcy filing puts an automatic stay on any collection proceedings. This will only be a temporary reprieve from providing the requested information, however, because either the bankruptcy trustee or a creditor may ask you those questions during the bankruptcy proceedings.  [11 USC Sec. 363, and Federal Rules of Bankruptcy Procedure Rule 2004.]

7. WHAT PROPERTY IS EXEMPT?

“Exempt” property means that property which cannot be taken by a judgment creditor, and which you are entitled to keep.  Or, if you file a bankruptcy, it also means that property which cannot be taken by the bankruptcy trustee for the benefit of creditors, and which you are entitled to keep.

a. PRACTICAL AMOUNT OF EXEMPTIONS

It should be kept in mind that just because an item of property is not exempt, or is worth more than the allowable exemption, that does not mean that a creditor would want to take it.  If, for example, the allowable exemption for an automobile is $3,000, and your auto would sell for $4,000, it would probably not be worthwhile for a creditor to take the car.  There would only be $1,000 that the creditor could hope to get by selling the car, and it would probably cost more to seize the car, store it and then sell it than the creditor would get from the sale.

b. STATE EXEMPTION LAWS

Because exemptions are based mostly on state law, what property is exempt varies from state to state.  There are numerous websites that claim to give the exemptions for all 50 (or more) states.  I make no representation as to the accuracy of any of that the information, but some of those sites will at least give a starting point in looking for the applicable state law.

In most states, the exemption from a judgment creditor and from a bankruptcy trustee is the same.  California (since it prides itself on being different) is the only state that has two sets of exemptions – one of which can be used either in a bankruptcy or in dealing with a judgment creditor, and the other of which can only be used for bankruptcy.

In the following pages are grids which give the major exempt items under both sets of California exemptions.

 “704 EXEMPTIONS”
APPLICABLE TO BOTH JUDGMENT DEBTORS AND BANKRUPTCY CASES

Item Amount of Exemption Code Section
(California Code of Civil Procedure)
Motor vehicle $2,300 704.010
Household furnishings, appliances, provisions, wearing apparel, and other personal effects No dollar limit, but must be ordinary and reasonably necessary. 704.020
Material that is about to be applied to the
repair or improvement of a residence
$2,425 704.030
Jewelry, heirlooms, and works of art $6,075 704.040
Health aids
and prosthetic and orthopedic appliances
No dollar limit 704.050
Tools of the trade $6,075.  If married, then $6,075 for each spouse, or $12,150 if both spouses work together in same business 704.060
Wages 75% of unpaid wages 704.070
Social Security Benefits – a Deposit Account Total amount from Social Security Benefits 704.080
Unmatured Life Insurance Policies $9,700. If married, each spouse can claim $9,700 704.100
Public Retirement Benefits No dollar limit 704.110
Private Retirement Benefits No dollar limit 704.115
Unemployment Benefits No dollar limit 704.120
Benefits from a disability or health insurance policy No dollar limit 704.130
Personal Injury Claims and Wrongful Death claims Exempt to the extent necessary to support judgment debtor, spouse and dependents.  If award is payable periodically, the amount exempt is the same as for a wage garnishment. 704.140
704.150
Worker Compensation Benefits Exempt except for support claims 704.160
Cemetery plots No limit 704.200
Homestead (Dwelling) $100,000 if debtor is part of a family unit.   $175,000 if debtor or spouse is over age 65, or disabled, or over age 55 with gross income of less than $15,000 or $20,000 if married.
$75,000 for all other debtors
704.730

“703 EXEMPTIONS”
APPLICABLE ONLY IN BANKRUPTCY CASES,
AS AN ALTERNATIVE TO THE 704 EXEMPTIONS

Item Amount of Exemption Code Section
(California Code of Civil Procedure)
Homestead (residence) $17,425 703.140(b)(1)
One motor vehicle $2,775 703.140(b)(2)
Household furnishings, household goods, wearing apparel, appliances, books,
animals, crops, or musical instruments, which are held primarily for the personal, family, or household use.
No maximum limit, but no more than $450 in value in any particular item 703.140(b)(3)
Jewelry $1,150 703.140(b)(4)
“Wildcard” exemption in any property $925 plus unused amount of homestead exemption 703.140(b)(5)
Tools of the trade $1,750 703.140(b)(6)
Unmatured life insurance contract No limit 703.140(b)(7)
accrued dividend or interest under, or loan value of, any unmatured life insurance
contract
$9,300 703.140(b)(8)
health aids No limit 703.140(b)(9)
Social security benefit, unemployment compensation, or a local public assistance benefit.
A veterans’ benefit. A disability, illness, or unemployment benefit.
No limit 703.140(b)(10)(A)(B) and (C)
Alimony, support, or separate maintenance. To the extent reasonably necessary to support debtor and any dependent. 703.140(b)(10)(D)
payment under a stock bonus, pension, profit-sharing,
annuity, or similar plan or contract on account of illness,
disability, death, age, or length of service,
To the extent reasonably necessary for the support of the debtor and any dependent
of the debtor, with some exceptions
703.140(b)(10)(E)
An award under a crime victim’s reparation law. No limit 703.140(b)(11)(A)
A payment on account of the wrongful death of an individual of
whom the debtor was a dependent,
To the extent reasonably necessary for the support of the debtor and any dependent of the debtor. 703.140(b)(11)(B)
A payment under a life insurance contract that insured the
life of an individual of whom the debtor was a dependent
To the extent reasonably necessary for the support of the debtor and any dependent of the debtor. 703.140(b)(11)(C)
A payment on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary
loss, of the debtor or an individual of whom the debtor is a
dependent.
$17,425 703.140(b)(11)(D)
A payment in compensation of loss of future earnings of the
debtor or an individual of whom the debtor is or was a dependent.
To the extent reasonably necessary for the support of the debtor and any dependent of the debtor. 703.140(b)(11)(E)

c. NOTE RE DOLLAR AMOUNT OF EXEMPTIONS

The dollar amounts of the exemptions listed are the dollar amounts that are listed in the California statutes, but the actual amount of the exemptions are higher, because the exemptions have periodic increases based on the consumer price index and other factors.

At the time of the writing of this chapter, the “wildcard” exemption, listed at $17,425 is now up to $22,075.

d. WHAT IS NOT EXEMPT?

Now that you’ve looked at the list of assets that is exempt, what jumps out as the major items that are NOT exempt?

One of the main types of property that is not exempt is cash and money in a bank or savings account.

e. MAJOR DIFFERENCE BETWEEN THE TWO SETS OF EXEMPTIONS

The major difference between the 704 exemptions and the 703 exemptions is the homestead exemption.

Under the 704 exemptions, a debtor can keep between $75,000 and $175,000 worth of equity in his / her home (depending on age and other factors).

If the debtor is filing a bankruptcy, and elects the 703 exemptions, the debtor can only keep $22,075 of equity in the debtor’s home.

However, if the debtor has little or no equity in his / her home, the debtor can use the $22,075 wild card exemption for any property of the debtor’s choice, which could include cash, bank accounts, gold coins, etc.

8. CONCLUSION

The foregoing has given a summary of ways creditors can collect amounts owed under judgments, and what property is exempt from collection.  With this information, an attorney can advise a client whether and how much a creditor can collect.

To receive 1 hour of MCLE Credit, answer the test questions below, then hit Submit. Correct answers and a CLE certificate will be sent to you via email.

Test for How Creditors Can Collect
1. A plaintiff can obtain a pre-judgment writ of attachment in a business libel case. *
2. A pre-judgment writ of attachment cannot be obtained to collect a debt primarily for personal, family, or household purposes. *
3. A judgment can only be enforced for a period of 10 years after its date of entry. *
4. If a judgment creditor records an “Abstract of Judgment” with the county recorder, that creates a judgment lien on any real property owned by the debtor in that county. *
5. If a debtor earns more than the minimum wage, 35% of a debtor’s take-home pay wage can be taken through a wage garnishment. *
6. Once a wage garnishment order is in place, the court has no authority to reduce the amount of the garnishment. *
7. A judgment creditor can obtain an order requiring a judgment debtor to appear in court and testify about the debtor’s income and assets. *
8. Orders for Judgment Debtor Exams can be served by certified mail, substituted service, or publication. *
9. If your client is served with an order to appear for a judgment debtor examination, it is safe to advise the client to ignore the order. *
10. A judgment creditor can only require the judgment debtor to appear for an examination once every 60 days. *
11. A judgment creditor can obtain an order requiring the debtor’s spouse or parents to appear for an examination. *
12. A judgment debtor can file a bankruptcy and not have to worry about answering questions by creditors. *
13. In every state except for California, the exemptions are the same in bankruptcy and in enforcement of judgments. *
14. If a judgment debtor has an automobile worth $3,000, and he is only able to exempt $2,300 of its value, a judgment creditor is likely to seize the automobile. *
15. In California, the exemptions based on CCP 704 are available both to judgment debtors and in bankruptcy cases. *
16. In California, the exemptions based on CCP 703 are available both to judgment debtors and in bankruptcy cases. *
17. Household goods and furnishings are exempt both under CCP 704 and CCP 703. *
18. The family dog is exempt from a judgment creditor. *
19. The family dog (if worth less than $450) is exempt in a bankruptcy filing. *
20. A bankruptcy debtor can choose the exemptions either under CCP 703 or 704, but not both *

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