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When a creditor wins a lawsuit against a debtor for failing to make timely payments on a debt owed they will receive a judgment against that debtor. This judgment then gives the creditor the legal right to take certain actions in an attempt to collect the amount awarded in the judgment.

Unfortunately, as most creditors often find out, having secured the judgment is only half the battle. Once the creditor has won a judgment in court against the debtor, the creditor (and the creditor’s lawyer) must take concrete steps to collect on the judgment, or they may risk losing their ability to collect part or all of the money owed to them.

There are several factors that can complicate the process of collecting on the judgment: a debtor’s lack of liquid assets, cumbersome legal processes designed to shield debtors from nefarious collection attempts, and bankruptcy filings are just a few. In addition, collection options can vary based on a number of factors, including the type of debt (secured or unsecured), the type of creditor, and the type of debtor (consumer or commercial). An experienced collections attorney can evaluate the post-judgment situation and determine the best way to make sure as much of the judgment is collected as possible.

Regardless of the exact situation, the legal process for collecting on a judgment is highly complex and technical. Any creditor without significant experience at navigating this process will benefit greatly by speaking with an experienced attorney about the details of their situation and the collection options available to them.

Levying Assets

One way for a creditor to collect on a judgment is to levy the debtor’s assets. To levy an asset, the creditor must file for a writ with the court and then present that writ to the sheriff of the county where the assets are located. The county sheriff then seizes the assets and auctions them off, with the proceeds going to the creditor. This process involves filling out a significant amount of legal paperwork and dealing with multiple courts and agencies, so it’s best to have help from a lawyer.

Levying assets works well against businesses and consumers with lots of physical property but few liquid assets. It’s also possible to levy a bank account, which freezes the account so that the debtor cannot withdraw money and requires the bank to pay the judgment to the creditor in an amount up to the balance of the account.

The levy process effectively puts a lien on the debtor’s property. The normal law of liens still applies, so any lien that already exists before the levy takes priority over this levy. In practice, houses are usually subject to a mortgage and cars are often subject to a financing agreement, which makes it difficult for a judgment creditor to receive value from levying these assets.

There are several other difficulties creditors often encounter in levying property. First, the creditor must know where the debtor’s assets are. Generally, county sheriffs won’t do a great deal of investigation to find out where assets are, so the creditor has to find out where they are and give specific instructions to the sheriff’s office. This may involve hiring private investigators, which adds to the creditor’s costs.

Second, the state of New Jersey exempts many types of assets from being levied and seized. New Jersey statute 2A:17-19 exempts up to $1,000 in personal property from seizure to satisfy a judgment. Additionally, all of a debtor’s clothes are exempt. A creditor also cannot levy unemployment payments, payments from most types of public employee pensions, or insurance payments.

Third, the process can be cumbersome. As noted above, county sheriffs conduct the seizure process. These sheriffs do not have jurisdiction outside their own counties, so if a debtor has assets in multiple counties, the creditor must file for a writ in each individual county where the debtor has assets.

The sheriff also charges a fee of 6% on sales under $5,000 and 4% on anything received over $5,000, with a minimum charge of $50. The sheriff’s fee is collected before any proceeds are distributed to the creditor. Although these fees are added on top of the judgment, they will effectively come out of the amount due to the creditor if the debtor’s assets are not valuable enough to satisfy both the judgment and the sheriff’s fee.

For example, if a debtor owes $10,000 and the sheriff sells an asset for $12,000, the sheriff would collect a $580 fee, the creditor would receive $10,000, and the debtor would receive the remaining $1,420. However, if the asset only sold for $8,000, the sheriff would collect a $420 fee, leaving the creditor with only $7,580 of the amount owed.

Fourth, the levy process can become complicated if the debtor’s assets are co-owned. Real estate owned by the debtor and the debtor’s spouse usually cannot be levied unless both spouses are responsible for the debt. For assets other than real estate owned by a married couple, a creditor can only take the debtor’s share of the property, which may be difficult to sell.

For example, if the debtor is a joint owner of a car with his wife, the creditor would only be able to levy the debtor’s half of the ownership of the car. Usually, very few people are willing to buy half of a car. If the creditor is lucky, the wife might be interested in buying the debtor’s half back. If the creditor is unlucky, the creditor might have to bring legal action (thus incurring legal fees) to partition ownership, sell the car, and give half the proceeds to the wife.

Finally, debtors typically don’t have enough assets to cover a judgment. This is especially likely when a debtor has multiple creditors. If a debtor has not filed for bankruptcy, then he or she may be the target of multiple collection actions. If this is the case, whichever creditor levies assets first is entitled to all proceeds from the sale of that asset up to the amount they are owed, meaning the rest of the creditors can be left with nothing.

The question of whether and how to levy a debtor’s assets is best discussed with an experienced attorney who can develop a strategy based on the specific circumstances of your judgment and the assets of the debtor.

Garnishing Wages

When a third party owes money to the debtor, a creditor can file a garnishment action to require the third party to pay the creditor instead. The most common target for garnishments is a debtor’s employer. Oftentimes, a debtor’s wages are the most reliable liquid asset available to creditors.

Garnishment requires filing for a writ of garnishment with the court and then presenting the writ to the debtor’s employer or bank. The writ specifies the amount owed to the creditor and the justification for withholding. Both federal and New Jersey law limit how much of a person’s wages can be garnished.

Under New Jersey law, the amount of a debtor’s wages which are subject to garnishment will depend on the debtor’s income. If the debtor makes less than 250% of the federal poverty level, a creditor can garnish up to 10% of the debtor’s income after tax withholding. This amount increases to 25% of the income of a debtor earning over 250% of the federal poverty level. For example, if a childless single debtor makes $31,000 per year, a creditor can garnish up to 10% of the debtor’s income after the employer withholds taxes.

Federal law also limits the amount of wages a creditor can garnish. Under federal law, a creditor can never garnish more than 25% of a debtor’s disposable income or the debtor’s disposable income minus the federal hourly minimum wage ($7.25) times 30. Disposable income is defined as the amount of income a debtor has after the employer has withheld taxes from the paycheck.

Federal law and New Jersey law both act as upper limits on how much can be garnished, so whichever law allows a smaller garnishment applies. A lawyer can check how a debtor’s wages fit into both sets of laws and determine how much a creditor can expect to receive from garnishment.

In the example above, with a childless single debtor making $31,000 per year, federal law would allow a garnishment of either 25% of post-withholding income or post-withholding income minus $217.50 ($7.25*30) per week. Assuming the debtor receives $528 per weekly paycheck after withholdings, federal law would allow either a $132 garnishment (25% of post-withholding wages) or a $310.50 garnishment ($528-$217.50).

The lower of these garnishments, $132, would be allowed under federal law. However, the garnishment allowed under New Jersey law is even lower: 10% of post-withholding income, or $52.80. Thus, the creditor would only be able to garnish $52.80 per week.

It’s important to note that the maximum garnishment amount applies to all creditors, not each creditor individually. If more than one creditor garnishes a debtor’s wages, they can still only garnish up to the New Jersey or federal limit. Whichever creditor files for a garnishment order first takes priority.

Domestic support orders, like child support or alimony, take priority over all other garnishments regardless of when they were filed. Thus, if a debtor has multiple creditors, it may be impossible for a creditor to garnish that debtor’s wages, especially if one of the other creditors is an ex-spouse.

Settling with the Debtor

Due to the difficulties of levying and garnishment, sometimes the best solution is to come to a settlement with the debtor. In some situations, it may be impossible to collect the entire judgment owed by levies or garnishments, especially if other creditors have priority over the debtor’s assets and wages, or the debtor is considering filing for bankruptcy. Furthermore, the cost of collecting on the judgment through these avenues may prove to be more expensive than the value of the assets received.

In these situations, it’s wise to negotiate with the debtor in order to attain some portion of what is owed before the debtor’s assets run out or they file for bankruptcy and the automatic stay halts any future collection attempts. While garnishment limits and exemptions from levies prevent creditors from seizing assets without the debtor’s consent, the debtor can still agree to pay the creditor. Some debtors may be willing to pay a portion of the judgment in exchange for a release from liability.

An experienced collections attorney can assess a situation and determine exactly what collection methods might still be available to the creditor, which determines the amount of leverage a creditor has in a negotiation. In addition, an experienced attorney will be able to figure out whether an offered settlement amount should be accepted, further negotiated or denied based on the specifics of your situation.

Judgments and Bankruptcy

Both federal and New Jersey law limit the methods a creditor can use to collect debts. Breaking these laws can lead to harsh consequences for a creditor. The most common mistake is attempting to collect on a judgment after a debtor has filed for bankruptcy.

Section 362 of the bankruptcy code creates an automatic stay, which forbids all attempts to collect on a debt, even if the creditor has won a judgment against the debtor in court. Attempts to collect on a judgment from a debtor after the debtor has filed for bankruptcy can lead to severe financial penalties for a creditor.

If a debtor has filed for bankruptcy, the creditor should contact a bankruptcy attorney as soon as possible. Bankruptcy is a complex legal process with many critical deadlines, meaning it’s easy to accidentally forfeit claims. An experienced bankruptcy attorney can help navigate the process and ensure that the creditor is able to receive as much of what they are owed as possible.

Who Should I Contact if Someone Owes Me Money?

If you are owed money and are having trouble collecting, contact Rosenblum Law for a free consultation today. Our attorneys have represented both creditors and debtors, so we are familiar with the ins and outs of the collections process. We’ll make sure that you’re able to receive as much of what you’re owed as possible. Call 888-815-3649 or email us today.