Creditor's Rights

Question 1

What are the three critical facts in a creditor’s rights case?

Answer 1

1) Does C have a judgment?
2) Is D an individual?
3) Is property real or personal?

Question 2

If the creditor does not have a judgment, will the Commonwealth get involved?

Answer 2

Generally, NO. Exception: Attachment.

Question 3

What is attachment?

Answer 3

Prejudgment remedy by which P in a pending suit can obtain a lien on D’s property so that property will be available to satisfy any later judgment in the suit.

Question 4

What is the process of attachment?

Answer 4

1) Creditor files petition of attachment stating grounds for attachment, posting a bond (cash = FMV, property = 2x FMV), and filing notice lis pendens i.e. notice of lien.
2) Court determines whether grounds alleged in petition exist. Standard = reasonable cause. If yes, court issues writ of attachment.
3) Sheriff provides copy of attachment to person in possession of real property, or in the case of personal property, the sheriff levies the property.
4) C gets contingent or inchoate lien that dates from the time of levy. Judgment is necessary to make the lien enforceable relates back.

Question 5

What are the grounds for seeking attachment?

Answer 5

1) Non resident debtor

2) Fraudulently conveying, removing, or concealing property.

Question 6

What if creditor has a judgment, but judgment issued by a court in another state?

Answer 6

Need to domesticate the judgment by

1) Registering judgment w/ VA court that will enforce judgment
2) Notifying D in writing of the registration

Question 7

What if the debtor owns property as a tenancy by the entirety?

Answer 7

Only a creditor w/ judgment against both husband and wife can enforce the judgment against tenancy by the entirety property such as real estate or a joint bank account.
EXCEPTION: IRS is not limited in enforcing federal tax liens.

Question 8

What is the VA homestead exemption?

Answer 8

Creditors may not obtain judgment against property, REAL OR PERSONAL, up to $5,000 (plus $500 for every additional dependent) for which a homestead deed is filed.
EXCEPTION: PMSI or PMMortgage, intentional tort claims, alimony or child support, waiver as to that creditor, or IRS.

Question 9

What is the poor debtor’s exemption?

Answer 9

Debtor retains rights in:

1) Clothes up to $1K, household furnishings up to $5K, sentimental items/heirlooms up to 5K
2) Tools of the trade up to 10K
3) Motor vehicles up to 2K
4) Burial plots
5) Family bibles w/o monetary limit

Question 10

May creditors garnish wages?

Answer 10

Lessor of

1) 25% of disposable weekly earnings OR
2) amount by which disposable earnings exceed 40 times effective federal minimum hourly wage.

Question 11

May creditors obtain proceeds from personal injury actions?

Answer 11

No. Proceeds are exempt except for debt to medical providers.

Question 12

How does creditor obtain a lien on real property?

Answer 12

Generally, judgment creditor must docket (record) its judgment in the county or independent city where the land is located.
EXCEPTION: not necessary to docket judgment to obtain a lien on land located in county or independent city where the judgment was obtained. This is automatic docketing.

Question 13

How long does the judgment lien last?

Answer 13

Docketing creates a lien that lasts 20 years and can be extended by action taken before expiration of 20 year period.

Question 14

What property is subject to the judgment lien?

Answer 14

1) All real property in county or independent city of docketing.
2) Includes real property acquired after docketing.

Question 15

How does creditor with a judgment lien on real property turn that lien into money?

Answer 15

1) Judgment creditor must bring a creditor’s bill in equity where the land is located.
2) Commissioner appointed to determine inter alia whether 5 years of rents and profits from the land would satisfy the judgment.
3) Buyer takes free from liens junior to selling judgment creditor’s lien, but subject t liens senior to the selling judgment creditor’s lien.

Question 16

What is the summary for a judgment lien creditor in real property? (Creation, scope, priority, duration, and enforcement of interest)

Answer 16

Creation: attached when “docketed.”
Scope: attaches to current and after-acquired real estate.
Priority: from date of docketing, extensions relate back.
Duration: 20 years from judgment, but 10 years after sale.
Enforcement: creditor’s suit in equity.

Question 17

How does a creditor w/ a judgment get the Commonwealth to help it collect that judgment debtor’s tangible personal property?

Answer 17

Execution process: process by whcih creditor w/ judgment gets Commonwealth to help it collect that judgment from debtor’s tangible personal property.

Question 18

What are the papers required to file an execution?

Answer 18

1) writ of execution called fi fa issued by clerk of court directed to sheriff
2) return submitted by sheriff

Question 19

What does a sheriff have to do in execution?

Answer 19

1) Levy personal property of debtor w/in sheriff’s jurisdiction. This doesn’t require physical seizure but does require that a copy of the writ be served on judgment debtor.
2) Describe property so levied on return submitted w/in 90 days of issuance.
3) Sell property so seized at public sale.

Question 20

What are the two main differences between collection of judgments in personal property v. real property?

Answer 20

1) Docketing by judgment creditor v. levy by sheriff

2) Sale process controlled by court appointed commissioner v. sale by sheriff.

Question 21

What is the summary for how a lien creditor may execute a judgment on tangible property? Creation, scope, priority, duration, enforcement?

Answer 21

Creation: writ of execution by 21 days from judgment; arises on sheriff’s levy.
Scope: all personal property in jurisdiction
Priority: first in time, no notice required
Duration: time of levy to time of sale
Enforcement: public auction

Question 22

How does a creditor w/ a judgment get the Commonwealth to help it collect that judgment from the judgment debtor’s intangible personal property?

Answer 22

Creation: writ of execution to sheriff
Scope: all intangible property in VA
Priority: first in time from delivery of writ to sheriff
Duration: 1 year from return date
Enforcement: garnishment, limited to measurable intangibles and subject to limits on amount of wages that can be garnished.

Question 23

In collection of a judgment from a third party through the garnishment process, what does judgment creditor have to do?

Answer 23

1) Obtain writ of execution
2) Obtain garnishment summons from clerk of court
3) Service of summons on garnishee and judgment debtor.

Question 24

In collection of a judgment from a third party through the garnishment process, what can the garnishee do?

Answer 24

1) Assert defenses
2) Exercise the right of setoff
3) Acknowledge liability
BUT can’t pay debtor or 3d party other than judgment creditor

Question 25

Fraudulent v. voluntary conveyance

Answer 25

Fraudulent conveyance: transfer of nonexempt property by D with actual intent to hinder, delay, or defraud creditors. Badges of fraud = secrecy or intra family.
Voluntary conveyance: transfer of nonexempt property by insolvent D for less than valuable consideration.

Question 26

What is preference?

Answer 26

Payment of C1 while other Cs are unpaid is generally neither a voluntary conveyance nor a fraudulent conveyance. OK if FMV and no self dealing.

Question 27

Which creditors can challenge which types of transfers?

Answer 27

Present creditors: claims arose before transfer. Can challenge fraudulent or voluntary conveyance.
Future creditors: claims arose after transfer. Can challenge only fraudulent conveyances.
Creditors w/ judgments file motion to set aside transfer. Cs w/o judgment must file a C’s bill and notice of lis pendens and obtain judgment.

Question 28

What is an assignment for benefit of creditors?

Answer 28

VA statute allows D to transfer all assets to 3d party called assignee who sells property and uses the net proceeds from sale to pay Cs.

Question 29

What is the effect of assignment on Cs?

Answer 29

Generally, assignee gets complete title to all assets, so Cs have no further recourse against what was the judgment D’s property but is now assignee’s property.
EXCEPTION: If D continues to use or control property notwithstanding the assignment, Cs can challenge as a fraudulent conveyance.

Question 30

What is a mechanic’s lien?

Answer 30

Statutory lien for work/improvement/repair on buildings covering affected building and appropriate land or for work/improvement/repair of personal property on improved personal property.

Question 31

Who is a mechanic?

Answer 31

People who build/repair/improve houses or personal property.

Question 32

General contractor v. subcontractor?

Answer 32

GC: person who Ks w/ owner to supply material or services.
SC: person contracting w/ GC but not owner to supply material or services.

Question 33

How can you get a mechanic’s lien on real property?

Answer 33

File in clerk’s office in county or city where building is located. Memo must show names of owners of property and amount of claim. Must file w/in 90 days of completion of work.

Question 34

How does a subcontractor obtain its own mechanic’s lien?

Answer 34

File memo of mechanic’s lien. Notify owners and general contractor of amount and character of its claim.
**Lien is limited to amount owner owes GC and is subject to setoff.

Question 35

How does a GC or SC enforce a mechanic’s lien on real property?

Answer 35

Sue in equity w/in later of:

1) 6 mos. of recording memo of lien
2) 60 days of completion of work

Question 36

How does C obtain a mechanic’s lien on personal property?

Answer 36

1) Repair or improvement of personal property at request of owner or a person in rightful possession
2) continued possession by mechanic
3) no recordation requirement.

Question 37

How does a C enforce a mechanic’s lien on personal property?

Answer 37

1) Self-help sale if value of property is less than $5,000
2) Court supervised sheriff’s sale if $5,000 or more.
* *Must always give notice to debtor.

Question 38

When there are multiple creditors w/ liens on the same property, who wins?

Answer 38

First in time from the date C obtained its lien not the date it extended credit or obtained a judgment.

Question 39

What are the exceptions to the first in time rule when there are multiple mechanics liens?

Answer 39

1) Mechanic’s lien based on labor has priority over mechanic’s lien for materials.
2) Mechanic’s lien for subcontractor has priority over mechanic’s lien for general contractor.
3) Otherwise, all mechanic’s liens on same job have same priority.

Question 40

What do we do if there are mechanic’s liens and other kinds of liens on real property?

Answer 40

Prior in time real estate liens have priority over mechanic’s lien but priority is limited to the value of the real estate.