There are seven critical mistakes judgment creditors make when attempting to collect their judgment. Over the next several weeks, we’ll be discussing each mistake in detail… and how to correct it. Last week, we covered mistake #2: Expecting the judgment debtor to actually appear for the deposition, tell the truth, and produce the subpoenaed documents. Now, let’s identify the problem we are dealing with this week.
MISTAKE #3: EXPECTING TO FIND THE POT OF GOLD AT THE END OF THE RAINBOW
Judgment Creditors often expect they (or their professionals) will find that big bank account. Garnish the bank and you magically have recovered all the money to satisfy the entire amount of their judgment.
Finding the judgment debtor’s bank account(s) is a necessary and very important part of the process, but it is just the first step in a journey to satisfy your judgment. The money you recover by garnishing the account may be a rather insignificant amount or a substantial amount and either way, it’s a good start—but far from the end result.
Here’s how it works:
When you serve the bank with the garnishment, you should also serve a subpoena for copies of all credits and debits (front and back of the debits). The credits may come from other assets of the debtor such as transfers from savings accounts, distributions from trusts for which they are the beneficiary, rental payments from real estate holdings, or they may be payments from oil and gas investments or income from securities your debtor owns. You really do not want the periodic income; you want to take the entire corpus of the asset. As for the debits, you want to see where the checks are deposited. They may lead to other bank accounts or brokerage accounts of your debtor; payments on the mortgage on rental property your debtor owns; purchase of assets that can be recovered; fraudulent transfers that lead to recoveries; revocable trust—the assets of which may be taken; etc.
You should also get all incoming wire transfers. You will be able to identify the source, which may be additional accounts (domestic and/or offshore) belonging to your debtor that you can trace to find assets that have gone through it. You will get the wiring instructions and copies of all outgoing wires that may lead to other sources of recovery, domestic or offshore.
In addition to the loan application you have subpoenaed from the bank (or Mortgage Company) you will also subpoena copies of all tax returns provided, personal and business. From these tax returns you will learn of income- producing real estate which you may be able to take as well as K-1’s that indicate income from partnerships or LLCs that your debtor has ownership in, etc. If you determine it to be a single member LLC, you can take the entire LLC, since courts have held that single member LLCs have no asset protection.
These debtors’ financial statements and tax returns can actually provide you with the DNA of the debtors’ financial life—your road map to unwinding his financial world and recovering the assets to satisfy your judgment.
So finding the debtors’ bank account is very important, but it is usually only the first step of what may be a challenging but profitable journey to the satisfaction of your judgment.