You have won a money judgment against a debtor who owes you a substantial amount of money. Unfortunately, you have also gotten a letter from his attorney explaining that he has no nonexempt assets. You don’t even know what that means. Well, it’s not good news, that’s for sure.
The letter is essentially telling you that you have no means of forcing payment. It may or may not be true. At the very least, that’s what the debtor’s attorney wants you to think. Without nonexempt assets to go after, your collection options are limited. The big question is which options you still have open to you. That depends on state law.
Why Assets Matter
Assets matter in money judgment cases because they equal payment. Ideally, judgment debtors would have the cash on hand to make full payment right away. But that happens so rarely that it’s not even worth exploring. In the absence of a full cash payment, judgment creditors need to look at other means of collecting. That is where property comes into play.
Most states allow what are known as writs of execution. A writ of execution is a court order authorizing the local sheriff to seize and sell certain types of nonexempt property for payment of an outstanding judgment. Any proceeds from the sale would be forwarded to the judgment creditor.
At issue is the difference between exempt and nonexempt property. Exempt property does not fall under the purview of a writ of execution. It is untouchable. Only nonexempt property is up for grabs.
More About Exempt and Nonexempt Property
Nearly every state protects a judgment debtor’s primary residence from writs of execution. And if not the entire property, at least a portion of it. States utilize what is known as a ‘homestead exemption’ to create this particular protection. Homestead exemptions applied to debt collection usually take one of three forms:
- Full – A full extension protects the entire home and the land on which it sits. No part of it is subject to a writ of execution.
- Partial – A partial exemption protects the house and a certain amount of land on which it sits. Any excess land could be subject to a writ of execution.
- Homestead Value – Some states only protect a specified monetary value of a debtor’s primary residence and surrounding property.
To better understand the homestead value option, imagine a property valued at $100k subject to a homestead exemption of $75k. The property is subject to a writ of execution. But if it is seized and sold for the full $100k, the debtor would keep $75. The creditor would get the rest.
Nonexempt property can vary considerably among the states. For example, some states do not allow judgment creditors to go after a debtor’s primary vehicle. In other states, vehicles are fair game. Most states do not exempt things like jewelry, collectibles, boats and RVs, vacation and rental properties, and certain types of investments.
What It All Means From a Practical Standpoint
So, what does all this mean from a practical standpoint? It means that a judgment debtor with no nonexempt assets is going to be more difficult to collect from than another with plenty of such assets. You might have to rely on wage garnishment, bank account garnishment, and property liens to get paid.
Assets are crucial to successful judgment collection. It is why we spend so much time researching assets when we first take a case. If a judgment debtor has significant nonexempt assets, a creditor stands a much higher chance of actually getting paid the full amount owed.