The lawyer is currently consulting on legal contract documents to be used as a contract between investors to sign a consent to invest in doing business together.
Winning a money judgment against another party sets in motion the enforcement process. Enforcement can be a long, drawn-out process depending on the debtor’s ability to pay. Therefore, smart judgment creditors take a good look at the ability to pay before devising a collection strategy.
A judgment debtor’s ability to pay is just as its name implies. It describes how likely a debtor is to pay his debt based on income, assets, and history of cooperation. A debtor with a high ability to pay is considered far more likely to come through. The opposite is also true. A limited ability to pay suggests a debtor will not make good on the judgment against him.
Income Is a Good Place to Start
Debtor income is often the first place that creditors look to collect a judgment. Salt Lake City’s Judgment Collectors explains why.
Regular income can facilitate payment in a couple of ways. First, Judgment Collectors say a judgment debtor with sufficient income could voluntarily enter a payment plan. He would make regular monthly payments until the debt is paid off.
Garnishment is another option. A creditor could go to court seeking a writ of garnishment, a court order that compels the debtor’s employer to withhold a certain percentage of the employee’s disposable income for payment of the judgment.
Cash Assets Are Also Looked At
Creditors also want to look at any cash assets a debtor has access to. The reasoning goes back to garnishment. Some states allow bank account garnishment in addition to garnishing wages. Under a bank garnishment scenario, the court would issue a one-time order directing the debtor’s bank to seize cash assets and forward them to the creditor.
Both income and cash assets act as a starting point. If a creditor can convince the debtor to satisfy his judgment based on these two things, no further action is necessary. Yet that is not the end of determining a debtor’s ability to pay. Creditors need to be prepared to move forward if garnishment and payment plans are off the table.
Personal Property Subject to Liens
Personal property that could be subject to judgment liens are another contributing factor in a debtor’s ability to pay. A judgment lien does the same thing as any other type of lien: it attaches the creditor’s financial interest in the targeted property. A debtor must satisfy his debt before the attached property can be sold, transferred, or otherwise disposed of.
A Debtor’s Nonexempt Assets
The last piece of the puzzle is encapsulated in any nonexempt assets the debtor owns. Nonexempt assets are assets that are subject to sale and seizure. They include things like vacation and investment properties, vehicles, jewelry and collectibles, etc. Certain types of securities are also subject to sale and seizure.
In order to leverage such assets, a creditor would have to go to court to get a writ of execution. A writ might cover a class of assets or pertain to a specifically named asset. Either way, a writ directs the local sheriff to seize and sell targeted assets. Proceeds are forwarded to the creditor.
Seeing the Big Picture
From the creditor’s perspective, determining a debtor’s ability to pay is comparable to seeing the big picture. A creditor needs to know about all the debtor’s income and assets in order to formulate a collection strategy. Therefore, a smart creditor will leave no stone unturned in the search for any and all helpful assets. Only when a creditor fully understands the debtor’s ability to pay can he think about devising an appropriate collection strategy.
