Delays in Debt Collection

It has been said that "time is money." Nowhere is that more true than in debt collection law.

The race for the debtor's property

There is a basic principle of property law that people get to do whatever they want with their money or property until somebody legally takes it. This principle is extremely important in debt collection law, since the creditor's ultimate goal in debt collection is to get the debtor's money or property that can be sold for money. To the creditor, that means that the debtor can sell property, spend money, quit jobs, move out of state, and do a number of other things that may frustrate the creditor's ability to get money or property later, up until the day that the creditor gets a writ from the court to take specific property.

If a debtor has more than one creditor, then those creditors may be in a race to get the debtor's property. Unfortunately for the creditors, the debtor is allowed to choose to make it easy for one creditor and hard for another as long as the debtor is not in bankruptcy (there is such thing as forcing a debtor into bankruptcy, but it is rarely done and generally hard to do).

The three basic steps

There are three basic steps that creditors typically must take before getting any of the debtor's money or property: (1) get a judgment, (2) find out what property the debtor has, and (3) use writs of garnishment or execution to take it. Each step is fraught with potential delays, costs to the creditor, pitfalls, and traps for the unwary (overview of delays below).

There are two major exceptions that allow creditors in some cases to get property before finishing these three steps: Self-help remedies and pre-judgment procedures. Normally the only creditors that can use self-help are secured creditors, and it can only be done in certain situations. Pre-judgment remedies are usually available to secured creditor, but are only available to unsecured creditors in special cases -- normally the unsecured creditor must prove that the debtor is aggressively wasting or hiding assets. Other than these exceptions, generally the creditor must go through all three basic steps.

Delay #1: Preparing and Filing the Lawsuit (depends on attorney)

Getting a judgment starts with filing a lawsuit. The initial papers (usually a complaint and summons) must be drafted by someone. It is important that it be drafted correctly, with the necessary facts, causes of action, and requests for judgment. This step may take a longer or shorter time depending on the complexity of the case.

Delay #2: Serving the Lawsuit (depends partially on defendant)

The debtor you are suing has the right to due process of law. That means that the debtor gets notice and a fair opportunity to be heard before courts take any action (some limited exceptions). Notice of the lawsuit usually must be given by "personal service", which means having someone physically hand the debtor the court papers (some exceptions). Because of this, if the defendant is hard to find, serving the lawsuit can slow the process down considerably.

Delay #3: Time to Answer (20 to 30 days)

After being served, the defendant gets 20 days to answer if in state and 30 days if out of state. There is no speeding up this process except in special cases like evictions where the proceedings are expedited by statute.

Answering is a crucial step. If the debtor does not answer, the Plaintiff can get a judgment by default and does not have to go through the next two steps, discovery and trial. As a rule of thumb, a simple answer filed by the debtor typically slows down the lawsuit by at least six months, frequently more, because it gives the debtor the right to discovery and trial.

Delay #4: Discovery (can take months or years)

As soon as the debtor answers and makes the case disputed, every party has the right to discovery -- the process of legally forcing each other to give up information -- in order to prepare to go to trial. Discovery usually means written discovery and depositions. Depending on how complex the case is or in some cases how difficult the other party is, discovery can slow down the lawsuit for months or even years. The discovery phase is the time where most cases settle, so the case is often slowed down by settlement discussions during this phase.

Delay #5: Getting to Trial (can take months, depending on judge's calendar)

Once discovery is complete, either party can request a trial. The court usually sets a final pre-trial hearing, then a date for trial. Each of these can be set months out, depending on the judge's calendar availability.

Delay #6: Getting the Judgment Signed (can take days or months)

If the debtor did not answer the complaint, a judgment by default prepared by the creditor's lawyer usually takes a few days to enter.

If the case was contested and trial is completed, the judgment can be prepared for the judge's signature by one of the parties and sent to the judge to sign. The other party gets a few days to object to the form of the order. If there are no objections, the order usually gets signed within a week or two of being prepared

Delay #7: The Grace Period

After the judgment is signed (whether default or otherwise), there is a grace period of 14 days before a creditor can start executing on the debtor's property.

Delay #8: Discovery of Assets (can take months)

After all the work is done to get a judgment, the creditor typically still has one major problem before moving on to getting writs of garnishment and execution -- the creditor often does not know what property the debtor has. The law allows the creditor to use similar discovery procedures to those that happen within a case -- written discovery, depositions, etc. -- to learn about a debtor's assets after judgment. The process can be slow and difficult, can take months, and the debtor has the ability to frustrate the creditor in many ways during the process. All the while, until a garnishment or execution happens, the rule still applies that debtors can generally do whatever they want with their property.

Delay #9: Obtaining Writs of Garnishment and Execution

Once a creditor knows what property to execute on, what wages or bank accounts to garnish, etc., obtaining writs of garnishment and execution is relatively simple. The writs can normally be stamped by the clerk instead of the judge, so they can be obtained more quickly than other court orders.

Writs of garnishment are simple and are often the preferred method of creditors to collect. They order a person who owes money to the debtor (often an employer or bank) to pay the money to the creditor instead of the debtor. If that third party fails to comply, contempt proceedings can be brought and a judgment can enter against the third party.

Writs of execution are also simple, but involve more costs and time than garnishment writs. They order the sheriff to take and sell the debtor's property. The property must be taken, moved, stored, and the sale advertised in the newspaper. The writ must specify exactly what property is to be taken and sold, because the sheriff uses the list at the sale. The strategy with writs of execution can be more complex, because the creditor can bid at the sale using a part of the judgment.

Delay #10: Serving Writs of Garnishment and Execution

The last step in getting control over the debtor's property is serving the writs of garnishment or execution (these are not the very last step in collecting, but once service is complete, the creditor gets control). Serving a writ of garnishment may be easier than serving a writ of execution, because a garnishment needs to be served only on the third party who owes the debtor money (usually an employer or bank) and that third party gives notice to the debtor. A writ of execution must be served on the debtor

What if the debtor gives away property before the creditor gets it?

The general rule is that debtors can do whatever they want with their property until a writ is served, and creditors can do nothing about it. There is one major exception that allows creditors to recover property debtors gave away -- the law of "fraudulent transfer". If a court finds there was a "fraudulent transfer", the court can order the person who got the property to give it to the creditor. This can be accomplished in a number of ways, but the easiest is by getting a writ of garnishment after getting a judgment against the debtor and serving it on the person who got the property. Generally the transfer must have happened within the last four years, and certain conditions have to be present to show that it was fraudulent. The person has the right to defend as to whether those conditions existed.

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