Judgments in California accrue interest at 10% per year, so the amount due grows pretty rapidly. At this rate of interest, a judgment will double in size every ten years.
This relatively generous post-judgment interest rate is another tool that we can use for settlement leverage. A client might say, “Okay, I have$25,000 that was not paid back. The judgment is now $40,000 with interest, but do I need the entire $40,000? My cost of funds was probably less than ten percent a year, so I’ll take $30,000 or $35,000.” The client is still making more than what they lent or what they were owed. The fact that interest accrues so quickly scares debtors, which gives us more leverage to secure payment.
What Does It Mean for a Judgment to Be Partially Satisfied?
Let’s say a debtor owes $25,000. They have paid $10,000, which payment(s) are applied first to accrued interest and post-judgment costs so the amount they now owe is the original principal balance less whatever amount from the payment(s) was applied to principal. The judgment has been partially satisfied to the extent of any principal reduction.
Costs of Suit and Attorney’s Fees
Under California law, a creditor can generally recover those costs of suit set forth in the Code of Civil Procedure. They generally include filing and motion fees, service of process costs, jury fees, deposition costs and witness fees Keep in mind that this is a non-exclusive list. These costs can be included in the judgment.
Whether a creditor is entitled to recover attorney’s fees in business cases depends on whether there is a signed contract that provides for the recovery of attorney’s fees. You would be surprised how many of our clients have contracts that do not have an attorney’s fee clause or they simply do not have a written contract and are surprised to hear that attorney’s fees are not automatically recoverable.
When we work with clients on recovery matters, we are acting as their collections lawyer, however, that does not prevent us from recommending certain provisions that should be included in their contracts or modifications to their internal processes that should be made to maximize revenues.
For How Long Is a Judgment Enforceable After it Is Entered by the Court?
Judgments don’t last forever, unless you take action to make sure they are timely renewed. In California, a judgment is initially enforceable for ten years and can be renewed for successive ten-year periods, however, you cannot let the ten-year period run before renewing. If you do so, it is too late and the judgment is no longer enforceable. Additionally, any liens that were filed or recorded would also be void.
We obviously hope not to be working on uncollected judgments close to the ten-year mark, but clients often approach us with these situations from time to time.. We therefore advise clients to renew their judgments well before the ten-year mark rather than filing an application to renew with days or weeks to spare.
What Property Is Subject to Enforcement Procedures?
When it comes to a corporation or LLC, essentially all property it has is generally subject to enforcement, unless a prior lien on the businesses’ property has been perfected. Sole proprietorships can utilize the same exemptions as an individual debtor (see below).
For example, if a debtor received a bank loan and the bank filed a lien against all of the debtor’s assets, we may not be able to seize property that is subject to the bank’s lien. Generally, though, we can seize funds in a debtor’s bank account. . In these situations, we can run a UCC-1 search before or after suit is filed to determine what, if any, liens exist against the business. If we determine that all the assets of a business have been liened and there are limited funds in a bank account, we will counsel our client on the potential risks of moving forward with the legal process given that the debt may be uncollectible.
As discussed above, with businesses, the general rule is that there are no exempt assets, only limitations on enforcement from prior liens. However, if we are suing an individual, there are numerous exemptions available that are largely outside the scope of this book. Two examples are that an individual debtor can exempt up to $500,000 of equity in their home and approximately $2,000 from a bank account. If we are trying to garnish an individual debtor’s wages, we can garnish only 25% of their pay. There exists a fairly lengthy list of exemptions that an individual judgment debtor can utilize to make it more difficult—though certainly not impossible—to collect.
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