June 27, 2017

How Long Will Creditors Try to Collect on a Judgment?

When you have a judgment lien on your property you can feel as though sharks are circling youIn my ongoing series of blog posts about debt collection, garnishments, judgments, and how to rebound from financial setbacks I am asked lots of questions.

One reader asked what happens when you’ve proven to the sheriff that all your property is exempt from the judgment. She said, “Do they hawk you for years waiting for your financial situation to improve? What happens if you win the lottery six weeks later? Six months later? Six years later?”

Please be reminded that the legal information I share on my site is based in North Carolina law and should not be relied upon elsewhere.

Reminder: what is a judgment and what property can be seized?

I’ve already written extensively about judgements in North Carolina, but as a reminder, a judgment constitutes a lien on your real estate (land and buildings) in the North Carolina county in which the judgment was obtained and in any North Carolina county into which it has been transcribed.

The judgment creditor can have the sheriff seize personal property—anything other than land or buildings, including your automobiles and recreational vehicles. Upon seizure, the creditor will have a lien on the personal property. But first, an “execution on the judgment” is required.

An execution on the judgment expires in 90 days

The execution on the judgment is only good for 90 days. If you have demonstrated that your assets are exempt from liens and seizures (covered in this post) the sheriff returns the execution unsatisfied. Thus, it will die when returned.

This doesn’t mean that the judgment goes away; I cover that below.

Subsequent executions can be made over the life of the judgment. It is highly unusual for a creditor to continually reissue the execution; more than likely this would only occur when assets were discovered that the creditor did not know about or when a debtor comes into property in a public way, such as an inheritance or lottery winning to answer my reader’s question.

Any asset acquired by the debtor while a judgment is in effect (outstanding) becomes subject to an execution on the judgment during the term of the judgment. With each execution on the judgment comes an opportunity to claim exempt property.

How long a judgment lasts

A judgment is good for 10 years from the date of docketing.  It cannot be renewed but it can be sued upon within the 10-year period to extend the judgment period.

If the creditor obtains a judgment based on the first judgment the second judgment is good for another 10 years.  The second judgment dates not from the original but from the date that the new judgment is entered. This is why my reader’s question about creditors watching your financial wherewithal for years is a good one.

As an example, A gets a judgment against B, who owns a home.  The judgment constitutes a lien on B’s home.  Three months before the judgment expires, A files suit on the judgment. B answers the  complaint, and a period of four months later the new judgment is entered. Thus,  there is a one month gap between the expiration of the first judgment and the docketing of the second. During the gap, B sells his home. There is no lien because the first judgment has expired, and the second has not been docketed.

Most debtors will need assistance from a knowledgable attorney to successfully pull this off.

NOTE: The creditor may sue on the judgment only once. Note that this does not mean the judgment is continuous. There can be a time between the expiration of the original judgment and the docketing of the second.

How to keep judgment creditors away for good

The only way to be certain your creditors do not pursue collections is to reorganize your financial life through the orderly process of a bankruptcy case.

Debtors with significant real estate holdings or equity that they do not want to lose to creditors are wise to consider Chapter 13 bankruptcy. When the debtor owns real estate that is subject to the judgment lien, the complexity of the case escalates.

Let’s say the execution is issued, and the debtor claims the equity of $30,000, for example as exempt, which leads the sheriff to return the execution unsatisfied.

A smart creditor will calendar the matter eight to nine years in the future (because the judgment is only good for 10 years from the date of docketing).  At that  point in time, it will issue another execution. If the equity has grown to $75,000, the debtor has a real problem in that the maximum exemption will  be $35,000.  Time works against the debtor in two ways.  First, there will be appreciation over time.  Second, each payment that the debtor makes will decrease the debt on the property.

I wrote a free guide to dealing with troubled real estate assets that you are welcome to download without providing me with your contact information.

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