The Fastest Way to Secure and Collect a Debt

January 9, 2012

Photo by Tracy O

Generally, our legal system goes at its own moderate pace.  If you are owed money, collecting it can seem painfully, unbelievably slow.   When  a collection lawsuit is filed and served, it usually takes at least a year to get to trial, then additional time to finalize the judgment and to lien on the debtor’s property.  Throughout this long and often expensive process, there is always the risk of the debtor transferring away assets, pulling whatever equity he may have out of his property, leaving the state, or filing bankruptcy.

However, under the right circumstances, California law does allow some relief that can usually be acquired within about a month. This procedure, called a Pre-Judgment Attachment, is generally available (subject to some rare exceptions and nuances) where all of the following are true:

  1. the money is owed under a written or oral or even an implied “contract”(e.g. most often loans or business leases, or elsewhere as well);
  2. the debt is for a specific dollar amount (one that can be arithmetically calculated from the terms of the agreement) which is more than $500;
  3. the debt is not already secured by real property having sufficient equity to cover the debt;
  4. where the debtor is a “natural person”(as opposed to a corporation or an LLC), the debt must arise from that person’s business, trade or profession, rather than from personal, family or household expenses.

If these criteria are met, and there is a collection action filed, or about to be filed, an ancilliary motion is also then filed requesting an immediate Pre-Judgment Attachment on the debtor’s property, which, once granted, can be recorded against real or personal property of the debtor.  The amount of the Attachment is set by the amount of money owed plus estimated costs and attorneys fees, if fees are allowed, minus any payments made.

This procedure is not available in small claims court, but it is available even where the contract provides for binding arbitration.

Once recorded or, in some cases, filed, the amount owed is secured as a lien on that property, and that Attachment has priority over all subsequently filed or recorded liens, making it difficult for the debtor to refinance his property or to transfer it away.  As a practical matter, this Attachment puts the debtor on notice that he is going to have to eventually pay this debt, and often puts so much financial pressure on him that the case settles.

The debtors property subject to Attachment can include: real property, business receivables, equipment, farm products and inventory, money judgments in favor of the debtor, if arising out of the debtor’s trade, business or profession, cash on hand in the debtor’s business, trade or profession, money in accounts over the first $1000, negotiable stock or securities, most community property, even oil, gas or minerals to be extracted.

If the debtor is an individual (as opposed to a corporation, partnership or LLC), some property is exempt from a Pre-Judgment Attachment, most often specific assets in limited amounts exempt under California or federal law, wages, and income or assets necessary for the debtor family’s living expenses.  Under most circumstances, even if the debtor later files bankruptcy, this Attachment secures the debt on the property.

In summary, a Pre-Judgment Attachment provides some relief from the long delays that often occur in collection actions by promptly placing a lien on the debtor’s assets, securing those assets until judgment can be entered.  More often, placement of the Attachment forces the debtor to settle promptly.

Written by Basil Plastiras, Partner at Plastiras & Terrizzi