With the economic downturn, clients are increasingly asking specific questions about the rights and remedies of creditors.
As a caveat, this article is not intended to include everything that one might need to know about collecting against judgments. These remedies can be affected by many other laws not discussed here, including but not limited to claims by creditors of preferential or fraudulent transfer, or bankruptcy. The intent of this article is to explain some basic information about types of creditors and types of remedies available to judgment creditors.
Secured v. Unsecured Creditors
By way of background, there are different types of creditors: secured and unsecured creditors. A secured creditor is someone to whom you pledged property as security for the repayment of your debt. If and when you do not pay, that creditor has the right to get that property back by foreclosure on real or personal property or enforcement of their pledge of an interest in a company, bank account, or other property. Secured creditors do not always need judgments to obtain rights in their security.
An unsecured creditor is someone to whom you owe a debt and to whom you have pledged nothing more than your promise to repay them.
A few of the remedies of judgment creditors are attachment, garnishment, and charging orders.
- The remedy of attachment is the creditor’s right to have the sheriff seize particular assets, like money from your cash register, or a car, etc., to satisfy a judgment. (Note that in extreme cases, with the posting of a bond, it is possible for a creditor to get what is called a pre-judgment writ of attachment, which means they have the right to attach property before a final judgment, but only in special circumstances with the posting of a bond and a court order.)
- Garnishment of assets that belong to you but in are another party’s possession, like your bank accounts or wages receivable from an employer, is another remedy available to creditors.
- A charging order is appropriate when seizing assets in a business. With the passage of SB 405, which became effective October 1, 2011, Nevada has arguably the most protective charging order statute in the country. A charging order is the right of a judgment creditor to get to seize distribution rights associated with a shareholder, member, or partner in a corporation, LLC, or limited partnership, respectively. What is unique about Nevada is that SB 405 makes the charging order the exclusive remedy of a judgment creditor as to that particular property interest of the debtor.
Being forewarned is being forearmed.
By Guest Blogger Mary J. Drury Esq.