Articles Posted in Bankruptcy & Creditor Rights

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

I was looking up something the other day on the internet when I came across my blog dated January 23, 2020.  I took a minute to look at it and immediately noticed some of the exemptions have changed over the course of the last five years.  The following is an updated itemization of property exempt from creditors whom are attempting to collect on judgments they have obtained against debtors.

Prior to commencing legal action against a debtor, one of the first things I discuss with new clients is whether the debtor has any assets that can be collected upon.  In my opinion, an attorney taking on a new client in this circumstance, without initially exploring collection opportunities or options, is performing a great dis-service to the client.  The client came to the attorney with the hope of being paid that for which they are entitled.  If a lawsuit is filed and all that is obtained is a “toilet-paper” judgment (the judgment is worthless because there is nothing to be had), then what has the client gained?  Now of course I realize and recognize that sometimes the collectability of a pursued judgment cannot always be readily discovered, but there should at least be some attempt to see if collection or recovery is even going to be a possibility.

OBTAINING A WRIT OF POSSESSION

Secured creditors have options in taking possession of personal property collateral after default by the debtor.  As detailed in Idaho Code §28-9-609, a secured party may do self-help, if it proceeds without breach of the peace, or it may proceed to obtain the property through judicial process.  In the judicial process option, Idaho Code §8-301 allows creditors to claim delivery of the collateral prior to trial.  Also, take a look at Idaho Code §8-302.  This statute provides if a creditor wants possession of the collateral, in its Verified Complaint or affidavit, it must show its entitlement to the property by satisfying various factors as detailed within the statute. If the court, following its review of the affidavit or Verified Complaint, is satisfied that the requirements of the statute have been met, it shall issue an Order to Show Cause, essentially scheduling a hearing where the debtor can contest the delivery of the property to the plaintiff/creditor.

Prior to the hearing, the court may issue a writ of possession if probable cause appears that the debtor and/or defendant obtained the property by larceny, or the property consists of negotiable instruments or credit cards, or the property is perishable, or in immediate danger of destruction, or serious harm, or concealment, or removal from the state, or of sale to an innocent purchaser. If the writ of possession is not issued prior to the hearing, at the hearing, the court shall consider the showing made by the parties appearing and make a preliminary determination which party, with reasonable probability, is entitled to possession, use and disposition of the property.  If the court determines it proper, it shall direct the issuance of a writ of possession.

By Stephen J. Muhonen, Creditor’s Rights Attorney, Racine Olson, PLLP

It has been said that a hole was never dug by leaning on a shovel.  Rare is the occasion where desired outcomes and favorable results arise without putting your back into a project and earnestly working towards a focused goal.  So it goes with attempting to collect on a judgment.  If a judgment debtor does not immediately pay their court ordered money to a judgment creditor, rarer and rarer is the occasion where the judgment debtor voluntarily agrees to pay what is due.  Sitting on your hands hoping the debtor will do the right thing and “pay up” often only yields frustration and angst, with the judgment debtor not only NOT paying you, but now also living rent free in your head.  Recently, I had some clients who had enough of sitting it out and hoping their judgment would be fortuitously paid.  They called me up and we had a discussion about their situations.  After an enjoyable chat, we then entered into a fee agreement and together we rolled up our sleeves and went to work.  We expended time, effort and energy, and as a result, we recovered $150,000.00 on one judgment, $130,000.00 on a second, and $100,000.00 on a third one.  Congratulations to these clients!

The $150,000.00 recovery was on a judgment issued in Colorado in 2023 against an individual and an LLC.  The judgment creditor was able to track the judgment debtor to Idaho.  With the judgment debtor located, I was retained to domesticate the Colorado judgment here in Idaho and commence collection efforts thereon.  After about five to six months of servings writs of execution, obtaining a charging order, completing a debtor’s exam, subpoenaing documents, and pursuing and obtaining contempt order(s), the judgment debtor did indeed finally pay the judgment.  The client was willing to and did invest in the process, knowing there were no guarantees as to the outcome.  In the end, the work paid off!

By Stephen J. Muhonen, Creditor’s Rights Attorney, Racine Olson, PLLP

As a judgment creditor (holder of judgment entered in your favor), perhaps you have experienced the thrill of obtaining the judgment, and the agony of attempting to collect thereon. The judgment debtor (person or entity for which judgment was entered against) refuses to voluntarily pay up and collection efforts seem to have hit a dead end. The judgment has been recorded in the county where the judgment debtor resides, but unfortunately there is no real property to be located that is in the judgment debtor’s name. Garnishment of bank accounts and wages have not been fruitful, and all the judgment debtor’s personal property is either encumbered by a senior lien holder or not worth the expense that would have to be fronted to have the Sheriff seize and sell at auction. I have found that even though I may have exhausted these referenced options and come up with nothing, there is yet another arrow in the “collections quiver” called a “charging order” that can be very helpful.

If the judgment entered is against an individual who is a member of a limited liability company (LLC), Idaho Code §30-25-503 provides judgment creditors another option in their attempts to satisfy their judgment. In sum, this statute provides a mechanism for a judgment creditor to be able to go to the court, seeking the court’s entry of a Charging Order, that essentially tells an LLC to not pay the judgment debtor LLC member their distribution, but rather, to pay it to the judgment creditor. The statute reads in part,

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

The practice of law has endless highs and lows. Behind every victory, or so it seems, lays another potential legal concern that can take the rug right from under your feet. Due diligence and controlled paranoia, if you will, are part of the territory in the on-going attempt to stay on top of your case. This sentiment holds true even after you have won your case and judgment has been entered in your favor. One may think, “Hey, I won, I have a judgment, all’s well, I’ll just get paid now and ride off into the sunset.” Ha ha, if it were always so easy….

Obtaining a judgment does not necessarily mean, “Here is your payment.” It is more common than one may think, for it to take years (perhaps even never) to collect on a judgment. Judgments are not good forever and the judgment creditor needs to stay on top of keeping their judgment current if it has not been satisfied. Idaho Code §10-1111 provides:

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

Isn’t it irritating as a creditor when you discover in your contract with a customer/debtor that you don’t have a personal guarantee in the file and your only recourse on a delinquent account is against an entity, such as an LLC? Often for creditors, the lack of a personal guarantee on the promise to pay by the debtor LLC means an account may very well be uncollectable. This can be a common frustration when working with small entities and as a creditor, you are really hoping the LLC has unencumbered assets.

In general, collecting against an LLC is similar to collecting against an individual. However, LLC’s do not have the availability of exemption protections that individuals have. Take the time to research the county assessor’s records to see if the LLC has an ownership interest in any real property located in the county. If it does, record your judgment with the county assessor so as to have a lien on the real property. Now whether you can collect from the real property may be determined by the value of or equity in the real property. The purchase of a lot book or a litigation guaranty from a title company is helpful in this regard and it will show encumbrances on the property.

DEBTOR EXAM

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

I have been practicing law for almost 17 years.  Throughout this time I cannot tell you how many times I have been contacted by creditors/judgment holders, asking to retain me so as to have their debtor sat down and grilled as to what assets they have and where are the assets at.  Though I understand the creditor’s desire to have its debt satisfied and be made whole, unfortunately, or perhaps, fortunately, there is a process in place that must be followed in order to give force and effect to the collection process.

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

I had an interesting collections issue arise the other day that is worth discussing.  A self-represented judgment creditor was attempting to garnish a judgment debtor’s wages.  The judgment creditor had repeatedly served a Writ of Continuing Garnishment on the judgment debtor’s employer, just to have the writ returned each time, unsatisfied.  The judgment creditor was naturally frustrated because they had expended a considerable amount of emotional energy, time, effort and expense in the repeated attempts to collect upon the judgment; all for naught.

As I listened and the related facts unfolded, the reason as to why the Writ of Continuing Garnishment was not being accepted became apparent.  There were two problems.  One (1), the judgment debtor was not an employee, but rather, an independent contractor.  Two (2), because the judgment debtor was an independent contractor, a Writ of Continuous Garnishment was the improper mechanism to garnish the amounts due to the independent contractor, from the independent contractor’s creditor.

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

One of the first things I discuss with new clients whom are seeking legal representation to collect money from their debtors is whether the debtor has any assets that can be collected upon.  In my opinion, an attorney taking on a new client in this circumstance, without initially exploring collection opportunities or options, is performing a great dis-service to the client.  The client came to the attorney in the hopes of being paid that for which they are entitled.  If all that is obtained is a “toilet-paper” judgment, then what has the client gained?  Now of course I realize and recognize that sometimes the collectability of a pursued judgment cannot always be readily discovered, but there should at least be some attempt to see if collection is even going to be a possibility.

When performing the due diligence of exploring debtor’s assets, the investigation should take place with an eye on what assets may be subject to exemptions.  Now just because there are or may be statutory exemptions in place pertaining to the debtor’s property, that does not necessarily mean that one should avoid pursuing the debtor’s property.  It is up to the debtor to assert the claim of exemption and to do it timely.  If this is not done, the creditor may continue to execute/levy/garnish the property.  Some of the exemptions available to debtors are:

By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP

One of the most important priorities for a creditor or lender when entering into a contract with a borrower or debtor is ensuring they have a perfected security interest in the property that is being purchased.  The purpose of the security interest is to provide notice to the world of the encumbrance and to allow for recovery of the collateral in the event of default.  For real property (homes, land, etc.), this means recording with the county recorder’s office a mortgage or deed of trust.  See generally Idaho Code §55-811.  For motor vehicles this means providing notice of the creditor’s lien by having his/her/its name placed on the title.  See Idaho Code §49-510.  For the perfection of a security interest in goods, the creditor can file a Uniform Commercial Code (UCC) finance statement per Idaho Code §28-12-501 et. cet.

When it comes to repossession of collateral, as a creditor it is important to keep in mind the terms in the contract.  Following and abiding by the express terms of a contract, especially as they relate to notice, default and repossession rights, is critical to enforcement of the contract.  Idaho courts are generally inclined to enforce the terms of a contract that is knowingly and voluntarily entered into, even if such enforcement does not seem fair.