Bankruptcy: Garnished Wages - Execution of Lien - Recovery of Funds

     In the case of In Re Wilkinson, the United States Bankruptcy Court at Alexandria, Virginia denied the debtor's motion to avoid the creditor's execution lien; the debtor's wages had been garnished in execution of a judgment lien more than 90 days before the debtor filed his Chapter 7 petition. The Bankruptcy Court ruled that the debtor could not recover the garnished wages from the judgment creditor even though the order directing payment of the garnished wages to the creditor was entered within the 90-day period.

     The Bankruptcy Court stated that the issue was not whether a debtor could recover funds withheld from his wages more than 90 days before he filed his Chapter 7 petition, but whether the order of payment requiring the employer to pay those funds to the judgment creditor was entered within 90 days of the bankruptcy filing.

     The Bankruptcy Court concluded that the debtor could not succeed under the lien avoidance provisions of Bankruptcy Code §522 (f) because he no longer had an interest in the garnished funds as of the date he filed his petition. The Bankruptcy Court also concluded that the debtor could not succeed by stepping into the trustee's shoes under Bankruptcy Code §522 (h) and recovering the funds paid over to the judgment creditor as a preference because the judgment creditor's execution lien became fixed outside the 90-day preference period, and the payment within the preference period did not enable the creditor to obtain more than it would in a Chapter 7 liquidation.

     Accordingly, the Bankruptcy Court denied the debtor's motion to avoid the execution lien.

Collections: Post Judgment Collection

     Various methods are available to collect judgment debts. Every collector is aware of the option of garnishment of wages and bank accounts. Most collectors are aware of sheriff's levies on personal property. However fewer collectors are aware of perfecting judgment liens against real estate owned by the debtor. 

     When judgment is entered in the General District Court, unless appealed, it becomes final in ten days; Circuit Court judgments become final after thirty days. Once final, judgment creditors can request abstracts of the judgment from that Court (free for some counties and cities, $.50 cents per abstract in others). These abstracts can then be recorded (for $10.00 per abstract) in the Circuit Court in any county or city in which the debtor may own real estate. District Court judgments are good for ten years; Circuit Court judgments are good for twenty years. Each, upon motion to the court, can be renewed for an identical period of time. Since docketed judgment liens are good for twenty years, this docketing can provide a long-term hope for recovery. Once such a lien attaches, creditors may be able to bring suit to enforce the lien, or simply wait until such lien is paid at the sale of the property. 

     These liens can sometimes survive bankruptcy as well. If the lien is docketed for at least ninety days prior to a filing for bankruptcy, the lien should survive, and may eventually be paid. Note, however, that the real estate must be owned by the identical parties against whom judgment was taken. Thus, judgment against one of the tenants by the entirety does not entitle the creditor to the benefits described.

     What can be done when there is no information about your debtor from which to devise a post judgment collection plan? Virginia law provides for a good start -- Debtor's Interrogatories. For the price of a summons (usually $41.00) an attorney can Summons the debtor to appear before a Commissioner in Chancery (a lawyer appointed by the court) to answer questions about income, assets and the debtor's general ability to pay. This Summons is enforceable by a Capias (arrest warrant) which is issued through the court. This statute does allow debtors to request that the interrogatories be held at a court most convenient for the debtor. Therefore, if the debtor moves far from the creditor's area, it may not be cost effective to pursue the interrogatories.

     The law firm of Lafayette, Ayers & Whitlock, PLC aggressively pursues all collection cases from initial demand through final payment. We account to our clients with monthly statements and reports, and immediate responses to client questions. We are willing to assist in client collection matters piecemeal as well. If our assistance is needed just to proceed with interrogatories, an hourly fee can be arranged. Please call me at 545-6250 for a free initial consultation.

Collections: Garnishments Out-of-State

     While I have had good results in issuing garnishments out of state, especially when the garnishee is a bank that operates nationwide, success is not always guaranteed. Diversity in jurisdiction does create some issues. A good example of this arose in a case in the United States District Court where the Court granted a debtor’s motion to quash a garnishment summons after finding that the debtor’s wages were not located in Virginia. The garnishment summons had been issued by a Virginia creditor that was a Virginia hospital. The debtor was a Pennsylvania resident doctor. The garnishee was an Ohio company. The court ruled that the garnishment summons issued by the court was ineffective to garnish the wages not located in Virginia.

Collections: Post Judgment Collection - A Focus on Debtor's Interrogatories

     Once judgment is entered, what is next? Although all creditors would like for the judgment amount to "fall from the sky", it does not. Sometimes debtors will pay, either in full or in incremental payments. Sometimes creditors can garnish wages or accounts, or issue a levy on property. Sometimes creditors can bring a creditor's bill to sell real estate. But what can be done when the above listed remedies are not, or at least are not yet, options, or when there is no information about the debtor from which to devise a post judgment collection plan? Virginia Code §8.01-506 provides a good start - Debtor's Interrogatories. For the price of a summons to answer interrogatories (usually $44.00 plus service charges) an attorney can summon the debtor to appear before the court granting the judgment (or other court should the matter be transferred by the judgment court) or a Commissioner in Chancery (a lawyer appointed by the court to serve in this capacity) to examine the debtor's personal estate, specifically, to answer questions about income, assets and the debtor's general ability to pay in order to attempt to satisfy the judgment. The summons is enforceable by a capias (arrest warrant) which is issued through the court.

     The interrogatory procedure is summary in nature. No pleadings are required. No trial by jury is available. Under recent amendment to Virginia Code §8.01-506, the creditor may, as part of the interrogatory system, require the production of account books or other writings that contain evidence of the judgment debtor's estate, provided that the creditor gives an affidavit stating that he believes the books exist and identifies them with reasonable certainty.
     Virginia Code §8.01-506 allows a debtor to request that the interrogatories be held at a court most convenient for the debtor. Therefore, if the debtor moves far from the creditor's area, it may not be cost effective to pursue the interrogatories.
     It is important to note that a creditor cannot conduct debtor's interrogatories - only an attorney can. This certainly can be frustrating for creditors who take their own uncontested judgments and file their own garnishments, but it is a reminder as to why creditors are better served by turning all accounts over to counsel for collection prior to seeking judgments so that counsel can assess the attorney's fee provided in the contract or note, and can keep the entire process moving.

Collections: Garnishments Out-of-State

     While I have had good results in issuing garnishments out of state, especially when the garnishee is a bank that operates nationwide, success is not always guaranteed. Diversity in jurisdiction does create some issues. Recently a United States District Court granted a debtor’s motion to quash a garnishment summons after finding that the debtor’s wages were not located in Virginia. The garnishment summons had been issued by a Virginia creditor Virginia hospital. The debtor was a Pennsylvania resident doctor. The garnishee was an Ohio company. The court ruled that the garnishment summons issued by the court was ineffective to garnish the wages not located in Virginia.