May 28, 2017

What Can I Do about a Judgment against Me in NC?

If you have a judgment against you in NC here are your optionsA creditor has obtained a judgment against you. That means that the 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.

It also means that the judgment creditor can have the sheriff seize personal property—anything other than land or buildings, including your automobiles and recreational vehicles.

It also means that upon seizure, the creditor will have a lien on the personal property.

The question I’m often asked when liens are placed and property is seized is, “Can I do anything about this?”

Your creditors must go through the correct procedures to seize your property

Here is what must transpire for liens and seizures to be legally valid.

In order for real property to be sold to satisfy the judgment, or for personal property to be seized and sold to satisfy the judgment, the creditor must have an execution issued by the clerk of court authorizing the sheriff to take these actions.

For an individual, before an execution can be issued, the creditor must give the debtor the right to claim exempt property. In order to afford this opportunity, the creditor must serve the debtor with a motion to claim exempt property.

[note]Please note that this does not apply to entities created bylaw such as corporations, limited liability companies, partnerships and the like. The debtor individual must be given an opportunity to claim exempt property. [/note]

How to claim your property is exempt from liens and seizures

I will discuss the motion to claim exempt property below; however at this point, I want to discuss the nature of exempt property and what property that may be claimed as exempt under North Carolina law.

The concept behind the allowing a debtor to claim exempt property is that seizing all of a person’s property will virtually leave the debtor destitute. Nobody wants this.

Thus, the debtor can claim property that a creditor simply cannot reach. In theory, this is a minimum level of property that will allow the debtor to live on.

As we will see, it can be significantly more than a minimum level.

Items that can be exempted as set out in various places in North Carolina and Federal law. The primary set of exemptions as set out in N.C. Gen. Stat. §1C-1601(a).

Other exemptions covering specific items are found in numerous Federal acts, North Carolina statutes and the laws of other governmental entities.

A laundry list of property that is exempt from seizure by creditors

First, I want to discuss §1C-1601(a). This statute sets out a laundry list of exempt property. These are as follows:

(a)(1) $35,000 in equity in the primary residence including a manufactured home or burial plot. In the case of the survivor of a deceased spouse the amount is $60,000; provided that the real estate had been acquired jointly and the debtor is over 65.

(a)(2) $5,000 in any unused (a)(1). (a)(3) $3,500 in a motor vehicle. (a)(4) $5,000 in household goods with $1,000 for each dependent up to a total of $4,000.

(a)(5) $2,000 tools of trade or professional books.

(a)(6) Life insurance cash value to the extent that a spouse or children are solely the beneficiaries in an unlimited amount.

(a)(7) professionally prescribed health aids for the judgment debtor or a dependent in an unlimited amount.

(a)(8) compensation for personal injury for the judgment debtor or a dependent in an unlimited amount; however, claims related to the injury such as funeral, medical or the like can reach the compensation.

(a)(9) individual retirement accounts (IRA) including inherited IRAs in an unlimited amount.

(a)(10) $25,000 in a college savings plan under §529 of the Internal Revenue Code.

(a)(11) retirement plans from other states and governmental units in an unlimited amount.

(a)(12) alimony, separate maintenance and child support received or to be received to the extent reasonably necessary for support of the debtor or dependents.

There are numbers of other exemptions set out in the North Carolina statutes. These include such things and state and municipal pensions of various kinds. N.C. Gen. Stat. §1-362 provides that income earned within sixty (60) days of the execution is exempt.

In addition, there are numerous Federal exemptions of such things as social security benefits, military pensions, qualified retirement plans such as 401(k) and 403(b) plans and others.

Your spouse’s interest in real property might be protected

Finally, while not a true exemption, real property that is owned by husband and wife by the entireties can only be reached by creditors who are creditors of both husband and wife—not by creditors of either husband or wife.

Ownership by the entireties occurs when husband and wife acquire the property during marriage and do not specifically provide in the deed that the property is not entireties property. The entireties ownership ceases to exist upon divorce or upon a dissolution by separation agreement or property settlement agreement.

Note that the entireties exemption is not limited to a single property such as the residence. It applies to all real property owned by husband and wife in North Carolina without limitation in number of properties or amount.

[note] The only exception to the law regarding entireties property in North Carolina involves a debt owed to the IRS by one of the spouses and not the other. In this case the IRS can sell the taxpayers entirety interest.

Finally, the rule regarding entirety interests in real property does not apply in South Carolina. [/note]

Sheriff or certified mail will provide notice

At this time we go back to the debtor’s motion to claim exempt property.

A notice to claim exempt property together with the motion is served by the creditor upon the debtor. This can be by the sheriff or by certified mail. Generally, certified mail is the preferred method.

The notice will advise the debtor that he or she must file the motion to claim exempt property within twenty (20) days of service. The debtor must complete and sign the motion setting out the property claimed as exempt. The motion itself has various sections that generally follow the provisions of N.C. Gen. Stat. §1C-1601(a).

Unfortunately, there are no sections in the form for items discussed in the section above “A laundry list of exempt property.” A debtor who is unfamiliar with the process of claiming exempt property will often miss some available exemptions. A knowledgeable attorney will not miss these exemptions.

When the motion is complete, it is filed with the clerk of court, and a copy is served on the creditor’s attorney. The creditor has a right to contest the claim of exemptions, which could result in a hearing if the creditor contests anything in the debtor’s claim of exemptions. These contests rarely happen.

What happens when the judgment debtor fails to file the motion to claim exemption property? The right to claim exempt property is waived. It is gone and there is no way resurrect it in the North Carolina courts.

This means that the sheriff can seize property that could not have been touched had the exemption motion been property filed.

However, not all property can be seized. For instance, a 401(k) could not be seized because it is protected by Federal law.

Nevertheless, a debtor would not take kindly to have his or her $35,000 exemption in the residence or his or her IRA taken away by the sheriff.

A bankruptcy case may be the only way to stop seizure

Finally, if the judgment debtor fails to file a motion to claim exempt property, all is not lost. The debtor can still file a bankruptcy case. This revives the right to claim exempt property.

In this situation, the claim of exemptions is not controlled by the motion to claim exempt property, but rather though property claimed as exempt pursuant to §522 of the Bankruptcy Code.

I very often find that people are reluctant to use their bankruptcy option because they falsely believe their lives will be more difficult after bankruptcy. This free download will explain life after bankruptcy and how to rebuild your credit.

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