What can you do when a debtor does not pay you back?

October 14th, 2013 - Laughlan H. Clark

If you loan money to someone and receive a promissory note (“note”) in return, and the party owing the money on the note does not pay when the note is due, what can you do?

Besides making demand for payment, which is usually a preferred first step, you can bring a lawsuit to enforce the note. Unless you were given a security interest (a “lien”) in some particular property to secure payment, you have no right to collect against particular assets, but you can seek a “judgment” against the other party. A judgment is a legal document entered by a court which provides you certain legally enforceable rights to collect against the assets of the party against whom it is entered.

The lawsuit process to obtain a judgment involves the filing of a Complaint with the appropriate court setting out the facts on which you claim the right to recovery. When the suit has been filed, it must be served on the other party – the defendant – who then has a specific period to file an Answer. Many times, no Answer is filed within the allotted time, and you may obtain a judgment “by default’. If an Answer is filed and the obligation is disputed, you may have to have a trial in court where each side provides in-person testimony. Often, if you have a duly signed promissory note, there is no basis for the defendant to dispute your right to a judgment, and you may be able to prevail on a motion, rather than a trial. If you prevail, either by default, through a motion, or at trial, you will have a judgment against the defendant entered in the court records. What can you do then?

Enforcement of judgments is controlled by an extensive and complex set of statutory rules, and a discussion of any part of them would be subject unto itself. However, generally, one option you would have is to “garnish”, (or seize), money which is owed to the defendant by third parties – including bank accounts. Another is to “levy execution” upon, or force the seizure and sale of, assets of the party through the use of the Sheriff’s department. There are rules which provide that some property of the defendant, is “exempt” from collection, and may not be reached, such as Social Security payments, items of personal property of a certain value, and many more. In Washington, the judgment you obtain also automatically becomes a “judgment lien” on all real property of the defendant in the county where the judgment is obtained. However, there is also a “homestead” exemption which applies to the defendant’s residence in an amount up to $125,000.00. You can only obtain a judgment lien on homestead property by recording a certified copy of the judgment in the county where the homestead property is located, and even then, the lien only attaches above the homestead amount of $125,000.00. The execution of sales of homestead property is subject to a complex set of rules.

A judgment is generally effective for ten years, and can be renewed for an additional ten years. Often, if a judgment has been obtained, and the defendant attempts to buy or sell real estate, a title company will require the judgment be paid to close a transaction.

Obtaining and collecting upon a judgment can be a very complicated, and the above is offered as a very general overview. It is always prudent to seek the advice of an attorney as to your particular factual situation.

Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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