By Stephen E. Hyam, Esq.

You filed the lawsuit, litigated zealously, and now the judgment is in your favor. Once there is a final judgment in litigation, you are the judgment creditor and you going to be paid, right?  Not necessarily.  Often, the judgment debtor, the person who has been found to owe the money, will simply not make the payment.  This is when the next phase of the case must begin – enforcing the judgment.

Judgment Enforcement Seeks Assets

The purpose of judgment enforcement is to receive payment. First you need to find out if the judgment debtor has assets.  There are many different statutory rights that a judgment creditor can use to discover and execute against a judgment debtor’s assets.  One such right is a judgment debtor examination.  A judgment debtor examination compels a judgment debtor to testify about his or her assets.

Examination Is Under Oath

The judgment debtor examination is taken pursuant to a court order.  It is taken at the courthouse, after the witness has been sworn to tell the truth.  The witness can be the judgment debtor or a third party who has information about the judgment debtor’s assets or owes money to the judgment debtor.  Often, a court reporter is hired to take an accurate transcript of the examination.  The judgment debtor examination can be accompanied by a subpoena that orders the witness to produce documents.

Since the purpose of the examination is to obtain information concerning the judgment debtor’s assets, the party taking the examination is given a wide scope of inquiry. There are few restrictions on the subject matter of judgment debtor examinations if the inquiry could reveal the existence and location of a judgement debtor’s assets.  The purpose of a judgment debtor examination is “to leave no stone unturned in the search for assets which might be used to satisfy the judgment.”  Topics for examination include bank accounts; present employment; future employment prospects; questions about future or contingent interests such as inheritances; and payments due from third parties to the judgment debtor.  The judgment debtor can also be required to explain why real and personal property was transferred to third parties.

During litigation, there is a statutory privilege that one spouse/domestic partner cannot be compelled to testify against the other. However, this restriction is not applicable to judgment debtor examinations.  While the privilege applies to confidential communications between spouses/registered domestic partners, a judgment creditor may ask about property in which the debtor has an interest that is in the possession or control of the spouse/domestic partner, or any debt over $250 owed to the debtor by his or her spouse/domestic partner, because the existence of assets is not considered a confidential communication.

Disputes about the scope of the inquiry are often handled by the Court on the same day as the examination, so the investigation is not unduly delayed.

Third Parties May Be Ordered To Appear

Third parties often have information related to the judgment debtor’s assets. As a result, the post-judgment examination procedure may also be used with persons or entities who are not subject to the judgment, but may have information regarding the judgment debtor’s assets.  With a declaration establishing good cause, a judgment creditor may obtain a court order compelling a third party to attend an examination and (pursuant to a subpoena) bring documents.  The scope of the examination of a third party is essentially the same – to identify and locate a debtor’s assets.

Judgment Debtor Examinations Create An Automatic Lien on All Personal Property Assets

Judgment debtor examinations create an automatic lien on the debtor’s personal property, giving the creditor an advantage over unsecured creditors as long as the debtor does not file for bankruptcy or conduct an assignment for the benefit of creditors within 90 days of the examination.

Are Judgment Debtor Examinations The Best Choice?

The debtor examination gives the creditor the opportunity to ask questions and review documents. Bank records, for example, give clues about the sources of funds received by the judgment debtor and to whom the judgment debtor makes payments.  In certain situations, a judgment debtor examination may not be the best option.  Every case has unique facts and you should consult with legal counsel to determine the best way to collect on your judgment.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog. If you have any questions about judgment debtor examinations, please feel free to contact Stephen E. Hyam at shyam@clarktrev.com by email or telephonically at (213) 629-5700.

 

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