Benefits of Judgment Debtor’s Examination

By Jerry Jen:

A judgment is just a simple piece of paper, unless the creditor can successfully enforce it or somehow compel the judgment debtor to pay voluntarily. This is where a debtor’s examination comes in handy – whether the judgment debtor is a corporation or an individual. The concept behind the proceeding is straightforward. The creditor may examine the debtor about its assets under oath, and ask questions about the debtor’s finances.

Because debtor exams are adversarial and potentially embarrassing, there is a substantial risk that that many judgment debtors will simply lie about the extent or whereabouts of their assets. The risk of receiving false information is real. This risk has caused some creditors and their lawyers to conclude mistakenly that judgement exams aren’t worth pursuing.

Even if the judgement debtor is less than fully honest, there are three significant benefits of using a debtor’s exam as part of a strategy to get paid on a judgment.

1. Production of Documents
California courts have provided creditors with a wide latitude to inquire about a judgment debtor’s finances during a debtor’s examination. Many judgment creditors and their attorneys are unaware that you can also seek a production of documents from the judgment debtor as part of the examination. Don’t discount the usefulness of information that can be obtained, even from a checking account statements showing zero dollar ($0.00) balances. For example, you can see who the judgment debtor paid and who the judgment debtor transferred money to. You can also obtain information as to who the judgment creditor paid, its vendors, and its customers. Just by obtaining the bank account information from these statement, a savvy creditor can trace the funds and assets of the judgment debtor. In addition, the requirement to produce such documents may also encourage judgment debtors to seek a settlement or voluntarily resolve the case, as no one enjoys others digging into their businesses, assets, and finances – which could uncover other things they do not want to share.

2. Psychological Pressure
Debtor’s exams are often stressful and embarrassing affairs. The intrusiveness of the debtor’s exam and related document requests is part of a broader strategy—to signal to the judgment debtor that the creditor is serious about being paid and that failing to pay the creditor comes with certain psychological costs. At some point, many judgment debtors conclude that it better to just pay the creditor than to deal with the stress of being pursued for payment over a long time.

3. Civil Contempt – Bench Warrant
Debtor’s exams also include powerful enforcement powers for those who fail to appear. Specifically, if a judgment debtor fails to appear after being personally served with the Court’s order to do so, the judgment debtor is in contempt of Court. At this point, debtors not only owe the creditors money, they have also failed to comply with a court order. This typically leads the Court issuing a civil bench warrant for the debtor, which makes this a matter one that the judgment debtor may no longer simply ignore. Different county and state Courts deal with such differently, with some Courts issuing a warrant for a nominal bail of a few hundred dollars, while others issue bench warrants set for the sum of the entire judgment.

While the warrant is not the same as a criminal warrant, the quasi-criminal aspect of having a civil warrant issued against a judgment debtor is often sufficiently compelling to convenience the judgment debtor to take the matter seriously, or at least comply with the Court’s orders. If nothing else, this would start to establish a record and history of non-compliance by the judgment debtor, and could lead to other potential remedies, such as the use of receiver if applicable.

Aside from just obtaining information to aid in the enforcement of the judgment, a debtor’s exam is a great tool to enforce judgments, as the prospect of the hearing alone can sometimes be all that is necessary to bring the matter to a resolution, and get the judgment creditor paid.

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