Judgment Lien Priorities

August 12, 2023


Judgment debtors often have other judgments against them and owe money to other judgment creditors. Usually, the most aggressive creditor, the first to collect, wins. Federal and State tax (abbreviated here as IRS) judgment levy actions outrank common civil judgment levies, so do existing or future IRS judgments against your debtor mean it is game over for a regular judgment creditor? Not necessarily.

This article is my opinion, and not legal advice. I am a judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.

Usually, all other things being the same, IRS levies outrank regular creditor levies. If the IRS is already levying your judgment debtor’s assets, your levy will not attach and you must wait until they are finished; and then attempt to recover whatever available judgment debtor assets which may be left.

If the IRS notices your levy actions or gets around to noticing your debtor’s assets, you must stand down and let the IRS do their thing. If not, the IRS will stop your levy and start theirs, and add their fines and penalties when they levy their debtor’s assets; often leaving very little left for other creditors.

However, an aggressive creditor, especially having a small judgment, can levy their judgment debtor’s assets before the IRS does. Of course, if the IRS notices and learns of your levy and asks for the money or to do something, you should comply right away; however this very rarely happens.

When it comes to debtors with multiple judgments against them, it usually depends on how aggressive the creditors for the other judgments are. Most creditors do nothing, and if one creditor is more knowledgeable about the remedies and more aggressive in enforcement; who got their judgment first often does not matter. Usually, the squeaky wheel gets the grease; and one example is the California Coastal Commission v. Allen 167 Cal. App. 4th 322 case.

Of course, when it comes to recording real estate liens on properties that sell with some extra equity, usually the first judgment creditor to record their lien wins. As I.R.C. 6323 explains: “first in time, first in right”. Exceptions can happen, especially in bankruptcy courts. For a common creditor lien to outrank an IRS lien it must be recorded before the IRS records their lien, and be a “Choate” lien; which means it is a final lien situation, and the lien specifically lists what is attached.

Note that the IRS can jump ahead of an existing civil creditor’s levy. An example would be if you have an ongoing wage garnishment in progress, the IRS can step in and your garnishment will be put on hold, until the IRS’s debt is repaid. Sometimes the IRS can bend rules and laws to get paid, see www.lerchearly.com/publications/779-the-irs-may- >priority-over-secured-lenders-tax-lien-levy-cases.

Another situation where regular judgment creditors get burned is in bankruptcy courts. Trustee’s fees, legal fees, taxes, and other stuff is often paid ahead of your long-held lien position. In bankruptcy court, the big boys get theirs first.

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