Enforcing the Judgment
Previously on the North Carolina Debt Law Blog, we covered the lawsuit process and how a creditor can obtain a judgment against a debtor. But creditors don’t want judgments, they want money—or property that they can sell and turn into money. This post covers the process of how creditors turn judgments into money.
Notifying the defendant
The first step in enforcing a judgment is to notify the defendant debtor (or his attorney) about the judgment. N.C. Rule of Civil Procedure 58 requires that the party who prepares the judgment (usually the “winning” party’s attorney, judges are too busy to actually write out all their own judgments) must serve all other parties within three (3) days after the judgment is entered. Failure to do so within three (3) days extends the other parties’ time to move for a directed verdict, a new trial, or an appeal. In the cases of a Confession of Judgment, the debtor should be notified after the creditor files the judgment due to the debtor’s supposed default.
Execution of the judgment
Thirty (30) days after the entry of judgment, the judgment creditor may begin the execution process. This does NOT mean that anyone will be executed if they don’t pay the judgment. What this does mean is that the judgment creditor can begin the legal process of taking the defendant’s property to satisfy the judgment debt.
In North Carolina, a judgment acts as a lien against the real property of the judgment debtor in each county where it is filed. If the judgment debtror has property in other counties, the judgment creditor may transcribe the judgment to the appropriate county. If the judgment debtor has property in other states, the judgment creditor may file a lawsuit in the other state, which they will win under the Full Faith and Credit Act, and collect in the other state.
The Exemption Process
If the judgment debtor is an individual person and a resident of the state of North Carolina, state law gives him or her the right to protect certain property from judgment creditors’ collection efforts. These rights are called exemptions.
Before collecting on a judgment against an individual, the judgment creditor must serve the judgment debtor with a Notice of Rights to Have Exemptions Designated along with a Motion to Claim Exempt Property form. The judgment debtor has twenty (20) days to claim the exemptions by filling out the form and filing it with the Clerk of Court and sending a copy to the creditor or the creditor’s attorney. The judgment debtor may also move the court for a hearing before the Clerk of Court to determine his or her exemptions. After the Motion to Claim Exempt Property is filed, the creditor has ten (10) days to object for it or move for a hearing. If, after the hearing, either party is dissatisfied with the Clerk’s ruling, they may appeal to District Court.
Exemptions are “use it or lose it” rights. If the debtor does not claim his exemptions within the 20 day period or move for a hearing, they are lost and the creditor can collect on exempt property! Additionally, even after a debtor has successfully protected his exempt property, a judgment creditor may move for a modification of the exemption order due to “changed circumstances”, such as an increase in the debtor’s assets or an increase in equity in the debtor’s property.
Incorporated businesses do not have exemptions and the judgment creditor may proceed to collection after the thirty (30) days have passed.
Exemptions are important in both bankruptcy and in debt collection and will be discussed in detail in a future post.
There are three types of execution in North Carolina: (1) execution against property, (2) execution for delivery of specific real or personal property, and (3) execution against the person. The creditor files the form requesting execution in any county in which the judgment is docketed, then the Clerk of Court issues an Order of Execution for the Sheriff to execute the judgment.
Execution against Property
Most executions are executions against property. In these cases, first the Sheriff proceeds to seize the judgment debtor’s non-exempt personal property (cars, furniture, jewelry—anything but land and homes) and sell it for the benefit of creditors. If there is not sufficient personal property, the Sheriff will execute upon the judgment debtor’s real property (land), foreclosing on it to sell for the benefit of the creditors.
Additionally, because the judgment acts as a lien on the real property of the judgment debtor, it will “follow the property” even after the debtor sells it to a third party. Even if a creditor has taken no action to enforce a judgment, the judgment debtor may run into problems should he try to sell the property. Generally, the judgment debtor will not be able to sell the property unless the judgment is taken care of. If you are an unfortunate third person who purchased real property from a judgment debtor, the judgment creditor can still come after the property, even though you don’t owe the creditor anything! The good news is that a good real estate attorney should be able to find any outstanding judgments against the property and if they don’t, this is usually covered by the title insurance.
Execution for the Delivery of Specific Property
The execution may direct the Sheriff to recover specific property of the defendant and deliver it to the creditor. Frequently creditors know more about the judgment debtor’s property than the Sheriff’s deputies assigned to execute on it. They also have far more time and a far greater reason to look into it. Therefore, creditors may request that the Sheriff take specific property that they know the defendant has and can be quickly and easily sold to cover the judgment.
Execution Against the Person
Execution Against the Person has nothing to do with executing any judgment debtors, but is a post judgment procedure similar to Arrest and Bail. A judgment debtor may be arrested and thrown in jail if (1) he is subject to Arrest and Bail or (2) the creditor has shown one of the “causes of arrest required by law”, specifically that (a) the debtor is about to flee the state in order to avoid paying creditors, (b) the debtor has concealed or diverted assets in order to defraud his creditors, or (c) he will do so unless immediately detained. Execution Against the Person is a drastic remedy designed to prevent dishonest debtors from defrauding their creditors. Once again an honest debtor cannot be thrown in jail for failing to pay his debts in North Carolina. If a creditor wrongfully orders an execution against the person, he may be liable for significant punitive damages.
Payments After Judgment
If the creditor receives a payment from the judgment debtor it is the creditor’s responsibility to credit the debtor for the judgment, reducing the debtor’s liability. If the debtor pays the judgment in full, the creditor has an obligation to cancel the judgment. If the Sheriff or Clerk of Court receives a payment, they must do likewise. Execution on an amount greater than the judgment could subject the creditor to liability.
Challenging the Judgment
In certain cases, a judgment defendant may be able to successfully challenge the judgment. First, like in any lawsuit, the losing party may appeal the judgment to the North Carolina Court of Appeals. The Court of Appeals reviews the case to see whether the trial court correctly applied the law. In a bench trial, they review the trial court’s findings of fact as well. However, appeal to the Court of Appeals is expensive and in many cases would not be helpful anyway. As a result, appeal is rare in debt collection cases.
Far more common is the Motion for Relief from the Judgment under North Carolina Rule of Civil Procedure 60. Rule 60 provides several grounds for relief to suspend or “undo” a judgment. Rule 60(a) covers simple clerical mistakes. Rule 60(b) from a judgment for the following reasons:
(1) Mistake, inadvertence, surprise, or excusable neglect;
(2) Newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial;
(3) Fraud, misrepresentation, or other misconduct of an adverse party;
(4) The judgment is void; (Frequently due to lack of service or other notice.)
(5) The judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or
(6) Any other reason justifying relief from the operation of the judgment.
Rule 60(b)(6) is the “catchall” provision that allows the court to grant relief from the judgment for any sufficient reason justifying relief. One common reason that judges may grant Rule 60(b)(6) relief is if the debtor was not represented by counsel at the time of the suit, did not understand the suit, and has defenses to the suit or counter-claims that an attorney was able to find after the judgment. However, the decision to grant or deny a Rule 60(b)(6) motion largely is at the judge’s discretion. The judge does may deny the motion, leaving the judgment in force. Do not wait until after the creditor has a judgment against you to seek the help of an attorney! Get legal advice as soon as the creditors begin collections efforts.