I’m Gary Nissenbaum.

Welcome to another edition of Laying Down the Nissen-law, a podcast in which we seek to do a deep dive into the pressing issues confronting businesses, both large and small, that seek to protect themselves from legal pitfalls.

Please keep in mind that this podcast is not a substitute for legal advice. Consult an attorney for any specific situations that require representation.

And now…on to the Nissen-law…

How Do You Turn A Judgment into An Asset?

You’ve been through a trial. It’s over, and there’s now a judgment. Or… you’re in the middle of pretrial discovery, you made a motion for summary judgment, and you won. What do you do with that judgment? How do you turn that judgment into an actual asset? Well, there’s a lot of issues that arise post-trial, in regard to collecting a judgment.

And the first thing that we should talk about, I think, is how do you make sure that that judgment becomes a lien on all the property of the person who owes the money (which, in this case, would be the judgment debtor)? Well, as always, there is no blanket answer that would apply to all the states. State laws and procedures differ. But one thing that is almost always uniform, is that you have to be sure that this judgment has been recorded with the proper authorities: the state clerk, perhaps other local county or even municipal clerks. You have to be sure that it is searchable.

A Judgment Is Recorded, Meaning It’s Searchable

The difference between recording and filing is very important. Filing means exactly what it sounds like. You’re taking a document and filing it with the clerk of that court or that government agency. Recording is something more. Recording means that it is being put into a system that is searchable. It is not that someone can find it if they look; it’s that it is meant to be found. There is a system where people are encouraged to look for this, such as, for example, if a bank is giving a loan. They’re encouraged to see if the collateral that they’re obtaining for that loan already has liens on it from someone else who’s owed money by the same person.

For example, if a house is being purchased and there is a judgment for $300,000 on that house, and there’s a first mortgage for $200,000 and a second mortgage for $15,000, and let’s just add in a tax lien for unpaid taxes for 60,000, all those things are relevant to whether the judgment is going to be collectible or not… whether the home can be foreclosed upon and sold, after which that judgment can be paid from those proceeds. So the idea is you need to be able to have a comprehensive search of all liens that are recorded with regard to that collateral, and a judgment—generally speaking—is recorded. It is searchable.

Second thing is, what sort of things should a judgment contain? In other words, the actual wording of that judgment. That’s sort of interesting because you would think that there would just be a standard form, and you would just fill in the blanks, and if I won the case, I’m supposed to get x amount of money that the jury awarded or that the judge awarded. It shouldn’t be an issue. But there are all sorts of nuances here. For example, what about interest?

There is a distinction between prejudgment interest and post-judgment interest. The distinction is that prejudgment interest may not be something you’re entitled to under the law of that state, but there may be an underlying contract that was breached, which is how you ended up obtaining your judgment, because the person breached a contract they shouldn’t have that you had entered into with them, and that contract may have said that if it is breached you’re entitled to 15% interest or 18% interest or something else.

So the actual prejudgment interest calculation can be very, very important, and that is a field that normally has to be added into a judgment in that kind of scenario. But what about post-judgment interest? Subject to various state laws that may be different, generally speaking, after there’s a judgment, the prejudgment interest stops and the post-judgment interest starts. Meaning, that there is often an actual percentage interest that is agreed to, put in place in the court rules—in the rules of procedure—as to how much interest a judgment will accrue after it’s entered. That number might be 2%.

It’s entirely possible that after the judgment is awarded by the jury or the judge at the trial, there is a post-judgment hearing to see if you’re entitled to attorney’s fees reimbursement.

So you may be in this situation in which you already have this very high prejudgment interest by virtue of your contract, and then you end up with a very low interest rate for any period after the judgment is entered. That’s a nuance that has to be addressed in order for the calculation to be accurate. In addition, you might be entitled to court costs. In addition to that, it’s entirely possible that after the judgment is awarded by the jury or the judge at the trial, there is a post-judgment hearing to see if you’re entitled to attorney’s fees reimbursement.

Why would you be entitled to attorney’s fees reimbursement? Well, there’s a lot of reasons but generally, it breaks into two categories: number one is the contract itself that was breached had a provision that said that you’d be entitled to attorney’s fees if you prevailed. So you prevail, and then you make the application in that scenario. The other way this could happen is that there’s a statute, an actual law on the books that says that if this statute is violated, the person who is the victim of that, or in some other way has an interest in it, can apply for attorney’s fees.

What Jointly and Severally Means in a Judgment with Multiple Defendants

One thing that I’m asked about a great deal by our clients is when a judgment says that there are multiple defendants who are now judgment debtors who will be, quote-unquote, “jointly and severally liable” for the judgment, what does that mean? Now that might seem like it’s just legal jargon and that it’s not that important. Actually, it’s vitally important and it specifically relates to the collectability. When you see the words “jointly and severally,” here’s what it means in the abstract.

Again, without getting into particular case law in a particular state, the overarching concept—let’s say you have John Doe and Jane Roe—are both defendants against whom a judgment has just been awarded, jointly and severally. And the answer is that jointly, they both owe the money. Severally means that they individually owe it completely. So for example, if there’s a $200,000 judgment and Joe has skipped town—you can’t find him, only can find Jane—if she jointly and severally owes the money… that means that she owes the full amount because she is severally liable for it. She then has to pay that amount because you’re allowed to go after either of them to get your money. That’s not the end of the story, though.

The rest of the story is that she then has the right—usually—to go after Joe, find him and seek some sort of contribution on that judgment, if the law allows her to do that, so that she says, “Look. We owe this judgment together. I paid the whole thing. You give me half.” There are all sorts of nuances there. It might not be viable under state law and procedure, but generally speaking, let’s put it this way. It is definitely a question you’d want to ask if you’re Jane’s attorney.

How does one judgment get priority over other debts relating to the same debtor?

Another question that comes up a great deal is, how does one judgment get priority over other debts relating to the same debtor? That’s an interesting one. What you have to be aware of is, how your state deals with priority of creditors, meaning priority of those who are owed money. Normally, there are different classifications of debts. An obvious example is that, if there’s a tax debt, if you owe the government taxes—and now the government has not been paid for a while, they instituted a proceeding, obtained a tax lien, and that lien is on the collateral, the question is, does that tax lien supersede other private debts… such as a bank mortgage, or in this case, a judgment?

And the second question is, is it a first-to-file state, where in that state, the first one to file that lien has priority over the next one to file? Or is priority determined in a different way? And the answer to that question is, that as to the first—normally speaking—when the government has a lien—tax lien and so forth—it jumps to the head of the line. Maybe not all the way to the top, but way up there. The government is making laws about money it is owed and therefore the government is pretty stringent about getting paid and having its priority over private debt.

As far as whether it’s first-to-file that has the priority over someone who files a lien thereafter—a mortgage, a judgment, something like that—the answer is state laws differ and you have to be cognizant of what’s going on in your state with regard to that. One of the things that you should keep in mind, and this is kind of a nuance of this whole area, is that if there is a bankruptcy filing, a lot of these assumptions go out the window. Meaning that part of American law is that people have a right to a fresh start. It’s sort of part of the American ethos that you come to this country and you can reinvent yourself.

If you take on enormous debt, there’s no way to get out from under it, you should have the right to go to the government, file what’s called a bankruptcy petition, and have the government—in this case, the bankruptcy judge—give you a fresh start where your creditors are paid a lot less than they’re owed normally, and done so in an orderly fashion, and then you have a new start. There is a stay, meaning “stop,” of collection efforts against you and there is a bankruptcy plan—normally—or some other procedure in the bankruptcy court that wipes the slate clean and you start again, albeit with you paying out to your creditors under some sort of plan, or if you just filed a bankruptcy in which you just have nothing and nothing is being given to anyone, nevertheless, you have that fresh start again.

How A Bankruptcy Filing Can Affect Your Judgment Collection

The reason why we’re dwelling on that is that there’s a big difference between a judgment and a secured claim such as a mortgage debt in a bankruptcy. And without going into all the nuance of this, because it’s a very complex area, the bottom line is that if you have a judgment, usually—not always, but usually—it is in the category of an unsecured debt. If you have a mortgage, by definition that should be a secured debt because it’s a mortgage on real estate, or could be a mortgage on some other collateral. In a bankruptcy, that second category, where there actually is collateral that is tied to that debt, it has priority.

So again, the point is not to give an entire seminar on bankruptcy law, the point is for you to see the distinction so that when you obtain a judgment, you realize that in a bankruptcy filing, you may be divested of some or all of the money that you are owed. Is there anything else that can be done to collect this judgment, assuming there is no bankruptcy, but also assuming that this person doesn’t have readily available assets? Meaning that there’s nothing that comes up on a search, it’s not clear that they really have much of anything. What else can be done?

And the answer to that is that we should make no assumptions. We should do the due diligence to really understand whether this person does or doesn’t have assets that are collectible. And again, state laws vary but the basic thrust is there’s usually a procedure post-judgment to take a statement under oath about the person’s assets. This could be something as simple as serving what under some state laws and procedures are called an information subpoena, in which the subpoena requests that the judgment debtor provide answers to questions about where their assets are being kept. Everything from any real estate they may own or any vehicles they may own, any jobs they have in which they’re getting a salary, there could be some kind of wage garnishment, that sort of thing, all the way up to a stamp collection, or unusual pottery, in which these collectibles could be sold to pay the debts to creditors.

“When the trial is over, the post-judgment procedures essentially start…”

The basic thrust here is that you don’t just take anyone’s word for it. You have to do an investigation, and the investigation generally should start by using the procedures available to you to actually ask the debtor themselves what they have. A variation on that is you might ask their accountant to produce tax returns, to produce other records relating to their finances. You might ask family members if there’s someone else who shares assets with them, such as a home. That sort of thing.

But the idea here is that when you obtain a judgment, when the trial is over, the post-judgment procedures essentially start and you have an entirely new set of procedures that you need to follow in order to be sure that that judgment results—we hope—in your getting paid.

This is Gary Nissenbaum. You have been listening to Laying Down the Nissen-law. Thank you.

Legal disclaimer: The information contained in this podcast does not constitute legal advice, nor a legal opinion. It should not be relied upon in any specific situation. The reader is urged to consult an attorney of their choosing with respect to any legal question they may have.