Enforcement of Judgments

Sometimes, there is no dispute about liability. Rather, the problem is finding assets of the person that owes the money, called the judgment debtor, from which a judgment may be satisfied. Lawyers call that kind of law suit a collection action.

Finding Assets. The first order of duty is to find assets. This may be done by sending a list of questions (called interrogatories) to the debtor, or by requiring him to attend a question and answer session (called a deposition).

If the creditor can find a bank account, it's possible to freeze by account by sending the bank a document called a restraining order. If the debtor owns real estate, filing the judgment in the county where the real estate is located causes the judgment to become a lien on the property. That lien can be foreclosed on, in much the same way that a mortgage lender forecloses on its mortgage if the home owner becomes delinquent in repaying the mortgage loan.

Fraudulent Conveyances. Quite often, the debtor will have transferred his assets to a family member for little or no money. That's called a fraudulent conveyance, and it requires bringing a law suit to undo the transfer.

The instrument provided by New York law is the Debtor Creditor Law. It permits a creditor to undo a transfer if the debtor didn't receive something in return-- called consideration-- to compensate him for his assets. The idea is that if the debtor gets enough in return, it doesn't hurt the creditor, who can go after the assets received from the transferee. But if the debtor doesn't get anything in return, the fraudulent conveyance depletes his estate, and acts as a fraud on the creditor.

One advantage provided by the Debtor Creditor law is that it permits the creditor to recover his attorneys fees. It can't be over emphasized that the economics of the litigation often determines the outcome. So if the creditor knows that he has a chance of being reimbursed for his attorneys fees, he can litigate longer and harder. By the same token, the debtor will know that he may have to pay for the creditor's attorneys fees. That significantly increases the debtor's exposure, and may tip the scales in favor of the creditor.

Piercing the Corporate Veil. Sometimes the debtor will be a corporation that doesn't have any assets. Let's say that A owns a company ABC that has sizable debts. There's nothing that prevents A from closing ABC and starting a second company XYZ.

The only effective remedy for the creditor is to contend that A, the owner, should have to pay the debts of ABC. It's possible to do that under a set of rules called piercing the corporate veil. But to pierce the corporate veil, the creditor need to show that the owner has so disregarded the separate existence of his corporations that he should be responsible for their debts. For example, a court will sometimes permit the piercing if the owner caused the corporation to pay for the owner's personal expenses.

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