Judgment creditors are empowered to seize the personal property of judgment debtors if their property doesn't fall within an exemption. Generally, creditors will not take your personal property because the cost and time of locating the property is usually not worth it to them.
Written by Attorney Karra Kingston.
Updated August 28, 2020
If you ignore your debts for months on end, creditors will eventually pursue a lawsuit to recover the balance owed. When this happens, creditors may secure a judgment against you. A judgment may allow debt collectors to seize your personal property. If you are wondering what kinds of personal property can be seized by judgment creditors, read on to learn about what a judgment creditor is, how a judgment can impact you, and the types of personal property that can be seized by a judgment creditor.
Understanding A Judgment Creditor
When you fall behind on your debts, your creditors may pursue a lawsuit to recover the debt that you owe. To initiate the lawsuit, the creditor will serve you with a summons and a complaint. The summons will provide details regarding how long you have to answer the complaint, where to file the answer, and when you must appear in court.
Depending on the law of the state in which you live, you will be required to answer the complaint within a certain amount of time. Otherwise, you’ll run the risk that the creditor will obtain a default judgment against you.
A default judgment is a court order that rules in the creditor’s favor because the defendant failed to appear or answer the complaint. A default judgment generally allows creditors to collect all of the money they demanded in their complaint. If you answer the lawsuit and lose, the creditor will also obtain a judgment against you, although this kind of judgment is ordered on the merits of the creditor’s claim. When a creditor obtains a judgment against you either by default or on the merits, the creditor is then referred to as a “judgment creditor.” From then on, they are legally entitled to use different methods to collect the outstanding debt that you owe. Once a judgment is entered against you, you become a “judgment debtor.” A judgment debtor is a person who is liable for a debt subject to the judgment that was entered against them by the court.
Once a judgment is entered, the ways in which a creditor can collect the debt from a judgment debtor become much broader. A judgment may allow creditors to seize personal property, levy bank accounts, put liens on real property, and initiate wage garnishments. Generally, judgments are valid for several years before they expire.
The statute of limitations dictates how long a judgment creditor can attempt to collect the debt. The statute of limitations typically begins on the date the judgment is entered or the date that a creditor last tried to collect on the judgment. These details are specific to state law. Many states allow creditors to renew their money judgments after the statute of limitations has run. A renewed money judgment can extend the period for how long a judgment creditor is allowed to collect on the debt. How many times a judgment can be renewed depends on state law.
What Does It Mean To Be Judgment Proof?
A person is considered judgment proof when they have no assets that can legally be seized to repay a debt. Generally, individuals who are considered judgment proof are people who make minimum wage or are collecting public benefits such as Social Security benefits, disability benefits, unemployment benefits and/or veteran’s benefits. Child support payments are also exempt from wage garnishments. In these cases, judgment proof individuals may have income and some minimally valuable assets, but those assets and income are exempt from seizure under the law.
Keep in mind, that being judgment proof is not always a permanent state. In some cases, this may only be a temporary condition and once the individual begins working again, a creditor can resume collection efforts against them.
Power of A Judgment
Once a creditor has obtained a judgment, it empowers them with a variety of ways to collect the money they are owed. The judgment potentially gives creditors the right to garnish your wages, levy your bank account, place a lien on your property, and seize and sell your property. State law restricts this power in various ways. It is therefore important to research judgment power in the state where you live, if you’re subject to a judgment order.
Personal Property that Can be Seized by a Judgment Creditor
The different ways a judgment creditor can enforce their judgment against you include the ability to:
Seize and sell your personal property: To seize and sell your personal property, the judgment creditor will need to get a writ of execution from the court. That document will identify the types of property that the creditor is allowed to seize. The writ of execution may allow the debt collector to take things like your household goods, furnishings, and jewelry, provided that these items aren’t exempt under the law. Keep in mind, this type of judgment enforcement is rare.
Generally, creditors will not take your personal property because the cost and time of locating the property is usually not worth it to them. Further, many people can use exemptions to exempt their property and keep their property safe from creditors. All states have laws restricting the types of property that are protected from seizure by creditors.
Wage garnishment: A wage garnishment allows creditors to notify a debtor’s employer and the local marshall or sheriff of the outstanding debt. Once the employer is notified of the judgment, they will be required to deduct a certain amount of money from the individual’s paycheck each week. The funds collected will then be sent to the creditor until the debt is paid off. Under federal law a creditor can garnish up to 25% of an individual’s net earnings or the amount by which their weekly net earnings exceed 30 times the federal minimum wage, whichever is less.
Bank account levy: A bank levy allows creditors to freeze a debtor’s bank account. When a creditor initiates a bank levy, the judgment debtor may be able to put money into their account but may not be able to take any money out of their bank account. Any money that is seized by the creditor per the terms of the levy will be taken to pay off the outstanding debt.
Place a lien on property: In many states, once a creditor obtains a judgment, the judgment automatically creates a lien on any real property or personal property that the debtor owns. Other states require the creditor to record the lien in their County Clerk’s office. A lien gives the creditor a security interest in the person’s property and prevents them from selling or transferring their property until the debt is paid off. In rare cases, a creditor can force the sale of the property to collect the amount owed.
Most creditors won’t go this route because of the cost associated with doing so. Additionally, most homeowners have mortgage liens on their property that would need to be paid before the creditor gets paid. After the mortgage lien is paid, states provide a homestead exemption which allows individuals to keep a certain amount of equity in their home. The judgment creditor wouldn’t be paid until after the mortgage company and homestead exemption are paid thus, forcing a sale of a debtor’s property is usually not worth the hassle.
Individuals struggling to pay their debt may consider bankruptcy as a debt-relief option to help them more successfully manage their finances. Many people considering bankruptcy are under a misguided impression that when they file for bankruptcy, their assets are taken away.
Bankruptcy laws were enacted to help people get out of debt and start over. If bankruptcy laws allowed all of a debtor’s property to be taken away, it would be extremely difficult for people to start over. Bankruptcy exemptions allow filers to keep their property and get rid of their debt. No exempt property can be taken to pay off a judgment creditor. On the other hand, non-exempt property can be taken by the trustee and sold to pay off the filer’s creditors.
Process for Seizing Non-Exempt Personal Property
If a creditor wants to seize property to enforce a judgment, they are permitted to do so, provided that the property is not exempt under state law. Judgment creditors can seize property that a person currently owns or possesses, property they own but don’t have in their physical custody, and property that they recently gave away. To seize an individual’s personal property, a court-appointed officer or sheriff will deliver the order to the debtor and either hand deliver the order to the debtor or post a copy of the order on their property. After the individual is served, the officer can peacefully take the property. Once the property is seized, the officer will auction the property off and use the proceeds to pay off the debt.
However, state laws allow people to protect some or all of their personal property with exemptions. Oftentimes, there isn’t enough equity in a debtor’s non-exempt personal property for a creditor to pursue this option.
Liens on Real Property
Judgment creditors can attach judgement liens to real property, including your home. A judgment lien provides notice to the public that you owe a debt. Typically, the lien is recorded at the County Clerk’s office. The judgment lien gives the creditor the right to collect proceeds from the sale of the property to pay off the debt. When a person has a lien on their real property, the person doesn’t have a clear title on their property. To clear up the title, you will have to pay off the debt before selling, transferring, or refinancing your property.
In some cases, creditors can force the sale of a person’s real property. This is rare and most creditors don’t pursue this route. Homestead exemption laws allow individuals with equity in their property to protect it from creditors. Because individuals can exempt a portion of their equity using the homestead exemption, creditors don’t usually pursue this route.
Although they rarely do so, judgment creditors are empowered to seize the personal property of judgment debtors if their property doesn't fall within an exemption. If you are currently being sued and are worried about a creditor securing a judgment against you and taking your property, it may be time to consider bankruptcy to help halt judgment actions and allow you access to a fresh start. Due to the impacts of Covid-19, many people are struggling with their debt while simultaneously navigating unemployment. If you have found yourself navigating such circumstances, you are not alone. Bankruptcy can stop a lawsuit initiated by a creditor and erase eligible debts and judgments against you.
Many bankruptcy lawyers provide free consultations designed to help you determine which chapter of bankruptcy you qualify for and whether bankruptcy is a good option for your financial situation. If you can’t afford a lawyer, you may be able to use our free online web app to help you navigate the Chapter 7 bankruptcy process.