The Remedy of Pre-Judgment Garnishment or Attachment
Many debtors are short on both cash and assets by the time they start defaulting on their credit card loans, student loans, taxes, and other bills. The moment a lawsuit is served on these debtors to collect these unpaid debts, many of them will take action to put whatever money and assets they do have beyond the reach of the creditor. These actions may be lawful or unlawful. Either way, the creditor is left empty-handed and there is nothing to grab by the time a court enters a judgment against the debtor weeks or months later and then follows it up with a garnishment order.
To help protect creditors facing this scenario, all states have adopted various forms of pre-judgment remedies that can be used swiftly to garnish or attach assets pending entry of judgment. These remedies are commonly referred to as pre-judgment remedies, including such devises as pre-judgment garnishment and pre-judgment writ of attachment.
Pre-Judgment Time Frame
All legal actions start by the filing of a complaint. When unpaid debts are involved, creditors typically file a collection lawsuit in the state where the debtor resides. Once that complaint is filed, the creditor’s attorney serves the complaint and a summons on the debtor. Usually the service is personal, meaning a process server shows up at the debtor’s home or place of work and hands him the complaint. “Are you Mr. Smith?” he may ask. And if you answer, “yes,” he hands you the complaint and says, “Mr. Smith, you have been served.”
Once served, the debtor has the legal right to respond to the complaint and either agree or contest the allegations made against him. The legal document that the debtor must file to do this is usually called an “Answer.” In his Answer, the debtor may deny the allegations or admit to the allegations. He may also raise defenses, such as: the debt has already been paid, the debt has been discharged bankruptcy, the debt was forgiven, the debt is so old its collection is barred by the statute of limitations, etc.
Typically the debtor will have 20 to 30 days to file his Answer. Once he has answered, the court will set various hearings to monitor the case and move it along. Eventually, the court will set a trial date where all the issues will be resolved, either by the judge or by a jury. Sometimes it can take months, even years, for the creditor to get its complaint to trial. And of course, a judgment in favor of the creditor and against the debtor cannot be entered until after the trial is over and only if the creditor prevails.
The time period from the filing of the complaint to the entry of Judgment is known as the “pre-judgment” time period.
Actions Taken by the Debtor During the Pre-judgment Time Period
During the pre-judgment time period, the debtor is free to treat his cash and assets as he pleases, as long as he doesn’t dispose or move them in some fraudulent or unlawful manner. The following are actions that the debtor can take to remove them from the reach of the creditor and make it difficult for the creditor to garnish or attach months later after a Judgment is entered:
- Withdraw all but a modest amount of cash from all bank accounts
- Deposit money in off-shore accounts beyond the reach of U.S. creditors
- Sell any assets that might be attached and keep cash instead
- Clearly define and only keep assets exempt from attachment
- Transfer or gift assets to family and friends
- Take new assets in someone else’s name, such as a wife, child or business partner
Pre-Judgment Remedies for Garnishment and Attachment
Most creditors are aware of the actions debtors may take to thwart the collection process. Knowing that debtors can put cash and assets beyond their reach unless they move quickly, some creditors incur the extra expense of invoking pre-judgment remedies such as pre-judgment garnishment or pre-judgment attachment. To do so, these creditors apply to the court immediately after filing the complaint and ask for the court to issue and order allowing the creditor to attach the debtor’s accounts and assets right away, long before a judgment is obtained.
To obtain pre-judgment remedies of this kind, the creditor must usually prove the following with solid evidence:
- That it is likely to prevail, i.e., that the debtor is in default and has no viable defense
- That the debt arises from the breach of a contract such as a credit card agreement, consumer loan agreement, etc. (pre-judgment remedies are not available for actions based on torts such as personal injury actions for negligence, etc.)
- That it will likely not have an adequate legal remedy if it must wait until entry of judgment, e.g., that the debtor is likely to liquidate or move his assets so as to put them outside of reach of the creditor unless the court acts immediately
Sometimes the court will issue these pre-judgment attachment remedies, often called writs of attachment, ex parte. That means the court forgoes a hearing which must be noticed and takes time (usually 2-4 weeks) to be scheduled, and instead issues the order on the day the application is filed. Often times the creditor’s attorney will show up at court the day the complaint if filed, provide an application for the pre-judgment remedies to the judge’s clerk once a judge is assigned to the case, and wait for the clerk to go into judge’s chambers to obtain his signature. The debtor must receive notice of this, but more often than not fails to show to contest it.
Enforcement of Pre-Judgment Remedies
Once the creditor has an order from the court allowing a pre-judgment garnishment or attachment, the creditor is legally permitted to implement the remedies immediately. This means it can serve the orders on all the debtor’s bank accounts, seize automobiles and valuable equipment, and the like. Often the debtor doesn’t even see it coming, thus precluding him from putting the cash and assets out of the creditor’s reach. Which of course is the very purpose of the pre-judgment remedies: to protect the creditor’s ability to collect. Once garnished or attached, the creditor then holds the cash and assets in trust until a final judgment is obtained against the debtor. If the creditor loses and the debtor prevails, everything must be returned to the debtor.
Because pre-judgment remedies are extreme, the creditor must be cautious to comply with the strict letter of the law and honor the debtor’s constitutional due process rights. These remedies vary from state to state and often depend on the nature of the claim and debt involved. For example, in California pre-judgment attachment is not available in Small Claims Court. To protect against mistaken or wrongful pre-judgment attachments, many states require the creditor to post a bond. Be sure to research your own jurisdiction carefully, and it is usually best to contact qualified creditor-debtor counsel to represent you.
California: Ca Civ Pro § 116.140(b) (pre-judgment attachment not available in Small Claims Court), Ca Civ Pro § 483.010 (elements the creditor must prove to obtain a pre-judgment attachment)
Online General Information
http://thismatter.com/money/credit/debt/other-prejudgment-remedies.htm (pre-judgment garnishment Texas)