If a creditor wants to seize your property in order to enforce a judgment (a court order allowing it to seize your property to satisfy the debt), there are a number of categories of property it can take. It's important to know which property is subject to collection by judgment creditors.
Keep in mind, however, that even if your property is subject to collection, you may be able to protect some or all of it with exemptions. State laws allow you to keep certain types of property, often up to a certain amount. To learn more about exempting property from judgment creditors, see out Property Exemptions topic page.
Here is the property that, absent an exemption, judgment creditors can seize to get paid.
Property You Own and Possess
When a creditor seeks to collect a judgment against you, all your property that is not exempt under state law could be taken to satisfy the judgment. As a practical matter, few judgment creditors go after tangible personal property (furniture, clothing, heirlooms, and collections) unless it’s quite valuable (a boat or a plane, for example). Judgment creditors prefer to focus on real estate, deposit accounts, paychecks, stocks, and bonds.
Property that belongs to someone else is not available to judgment creditors—even if you control the property—because you don’t have the right to sell it or give it away.
Example. A parent establishes a trust for her child and names you as trustee to manage the money in the trust until the child’s 18th birthday. You control the money, but it’s solely for the child’s benefit under the terms of the trust; you cannot use it for your own purposes. It can’t legally be seized by your judgment creditor.
Property You Own But Don’t Have on Hand
Any nonexempt property you own is legally available to a judgment creditor, even if you don’t have physical possession of it. For instance, you may own a share of a vacation cabin in the mountains but never go there yourself. Or you may own furniture or a car that someone else is using. Other examples include a deposit held by a stockbroker or the utility company.
Property You Have Recently Given Away
People facing a judgment are often tempted to give their property to friends and relatives or to pay favorite creditors before the other creditors show up.
If you give away your property or sell it for less than it’s worth, a judgment creditor could sue you and the recipient of the property for deliberately attempting to defraud the creditor. This might result in the property being recaptured for the creditor’s benefit, and you could be severely fined or prosecuted for your fraudulent activity.
However, you can generally choose what property to sell and which creditor to pay first. The exceptions to this rule are:
- bankruptcy (where the bankruptcy trustee gets to decide about your property)
- a security interest (where the creditor has a lien on the property), and
- fraud (where you improperly dispose of property so there’s less left for your creditors—for example, by paying one creditor more than that creditor is owed).
Example. Assume you owe two creditors $10,000 each. If you are faced with a judgment collection action by Creditor A, you may safely cash out your $10,000 securities portfolio and pay that full amount to Creditor B, leaving Creditor A high and dry.
Property You Are Entitled to But Don’t Yet Possess
A creditor with a judgment against you can go after any assets coming your way, once your right to them is firm. The most common examples are salary and commissions, earned before or after the creditor got the judgment. Other examples are refunds, vacation and severance pay, insurance payouts, royalties, inheritances, and guaranteed payments (such as from a trust or annuity). The procedure a creditor uses to seize your property in the hands of a third person is called “garnishment” or “attachment.”
State law limits how much of your earnings can be taken directly from an employer—it usually depends on the kind of debt. Taking part of your earnings is called “garnishment” or “wage attachment.” (For more on wage attachment, see our Wage Garnishment and Attachment area..)
Creditors are not only interested in the property you own now—they sometimes set their sights on property or money that you might own in the future.
For example, you might have a claim against a third party that you haven’t acted on—for instance, because you haven’t applied for the refund, made the insurance claim, or brought the lawsuit.
Occasionally a creditor will accept the rights to such a claim to satisfy a judgment. This is called an “assignment of rights,” and it lets the creditor pursue the claim in your place. (Usually, you must agree to cooperate with the creditor in pursuing the claim as part of the assignment of rights.) Typically, because the value of the claim won’t be definitely settled or known when you make the assignment, you and the creditor will negotiate what you think it might be finally worth, plus interest, but minus what it will cost to pursue the claim. The claim’s value might be further modified, depending on how easy or difficult it looks to successfully collect on the claim.
Stock options are another kind of future right that may have some value to a creditor. However, you won’t be able to assign an option unless, at the time you make the assignment, you have a right to exercise the option. In legalese, the right must be “vested.” Even if the right has vested, it is not always assignable. But be assured that, as soon as you exercise the option, your creditors will be all over your stocks or stock account.
Property That Is Only Partially Exempt
Sometimes, exemptions only protect your property up to a certain value. Property is partially exempt if its value is greater than the amount protected by the exemption. A creditor can seize and sell an asset that is only partially exempt, if the creditor pays you the value of your exemption.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.