Collecting on a Judgment
Q. Our credit union has been granted a final judgment on a past due loan. If the member refuses to pay the judgment voluntarily, how can we collect?
A. The first question to be answered is whether the credit union has an attorney. If so, you may simply wish to have your attorney handle the collection for the credit union. Since he/she typically will be paid only to the extent that he/she collects, the attorney should be quite interested in pursuing this aspect of the case. However, if the credit union received its judgment in small claims court, no attorney would have been involved and the credit union will need to either hire an attorney or collector or proceed on its own.
The member has twenty-one days to voluntarily pay before any collection action can be taken. If the credit union believes the member may try to hide assets during this time, it will need to hire an attorney (if it has not already done so) and attempt to get an injunction. After the twenty-one days have passed, the credit union can attempt to collect through legal process.
Q. What is legal process?
A. In this case, legal process refers to either having the court issue a garnishment order against the assets of a member held by a third party (such as unpaid wages or a bank account) or an order (writ of execution) to the bailiff or the county sheriff to take possession of property of the debtor that is in the debtor's possession. In most instances, obtaining a garnishment order will mean less administrative work for the credit union, since it doesn’t involve seizing and liquidating physical property from the debtor.
Q. How long is a garnishment against a bank account (or an account at another credit union) good for?
A. A garnishment against a bank account is good only at the moment it is delivered. It generally affects whatever funds are in the account and available for withdrawal by the member at the time the bank or credit union receives the garnishment. Keep in mind that funds that can be traced to a deposit of social security benefits are not subject to garnishment. Other assets not subject to garnishment include Individual Retirement Accounts (IRAs) and 401(k) plan funds.
It is important to note that funds will generally not be available to the extent that withdrawal was restricted prior to the garnishment being received. (This is identical to what occurs when your credit union has a loan secured by shares where access to the shares was blocked when the loan was made.)
Keep in mind that if your judgment was obtained due to a past due credit card account, you should obtain a garnishment order against savings in your own credit union to avoid possible Truth-in-Lending problems.
Q. How long is a garnishment against unpaid wages good for?
A. A garnishment against unpaid wages is good for 90 days from the date that it is issued. Once the garnishment is received by the employer, any wages earned by your member during the 90 days following the date of issuance of the garnishment (not the date of the employer's receipt) will be subject to garnishment up to the limits allowed by law. Note that garnishments received by the employer before the credit union's was received will take priority, as will garnishments for child support or unpaid taxes. If the member has court-ordered child support being taken from his/her wages, there may be nothing available to satisfy the credit union's garnishment.
Q. What action can the credit union take against the member if the credit union believes that the member is intentionally concealing assets to avoid paying the credit union's judgment?
A. The credit union (preferably through its attorney) can schedule a creditors' examination of the debtor. The court will order the debtor to appear in court (he/she is entitled to have an attorney, but few will bring one) and answer questions posed by the credit union's attorney concerning the debtor's financial affairs and assets. If the examination reveals assets, the credit union may be able to collect from them. If the debtor has been concealing assets or refuses to cooperate with the creditors' examination process, the debtor could be fined and/or jailed for contempt of court.
Q. Can the sheriff seize a member’s real or personal property in order to satisfy a judgment?
A. It depends. Certain property is exempt by law from levy and execution.
Additionally, if the debtor’s property is subject to a third party’s lien (such as when a member's car secures a car loan with a finance company), the credit union may not, as a practical matter, seize the property unless it is willing to satisfy the third party’s lien. The credit union can have the sheriff seize property that the credit union has a lien on to secure the underlying debt. Where a loan being collected on is secured, the credit union should include a claim and delivery count in its suit against the member.
Note that the credit union has the right to repossess property securing its loan either before or after judgment on the secured loan if it can achieve the repossession without a breach of the peace. However, if a breach of the peace cannot be avoided, the sheriff will have to do the seizing and the sheriff can only do so post judgment.
Q. Is there anything else we should keep in mind?
A. Yes. If legal process is issued against property that the credit union did not have a security interest in, the credit union could lose it (or the cash value if the property has been sold) if the member files for bankruptcy relief within 90 days after the property was seized. This information is not provided to discourage collection in situations where the credit union doesn’t have a perfected security interest, but rather, to make sure that credit union officials are aware of their exposure in situations such as this, where a member declares bankruptcy.
This article is designed to provide general reference information only. It has been prepared with regard to the subject matters covered and is solely intended to be an informational guide. This information should not be considered as legal advice nor relied upon as a substitute for professional services for specific fact situations. This Web site and the credit union league and affiliates it represents will not be liable for any direct, indirect, or consequential damages resulting from the use of the information.
