Old Judgment Debtors

August 12, 2023

What if you have an older (e.g., 75-year old or better) judgment debtor? This situation is automatically a challenge, because most of the income and benefits (e.g., social security), and even certain assets of elder judgment debtors are exempt from creditors. What if your debtor is 75 years old and lives in a house he owns; how could you attempt to recover a judgment in such a situation?

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, with older debtors, recovering judgments is a challenge. Laws require you to take every precaution in how you proceed, to protect your debtor’s interests until they die.

These days, many older homeowners are not rich, and many are just getting by. While making small payments on a payment plan might work for them, any “both feet” judgment recovery action would probably be too much; and might cause them to file for bankruptcy protection. Some attorneys are even touting bankruptcy as the new retirement strategy.

If you are a judgment enforcer, unless the judgment debtor is rich, be careful when making the decision of whether or not to accept assignment of a judgment where the judgment debtor is close or past 62 years of age. Once they hit a certain age, their exemptions go up quite a bit, and their bank accounts may well begin receiving electronic deposits of Social Security payments (giving them an effective $2,300 exemption in that account without having to make a claim.) If the debtor is married, the man can make such electronic deposits into one account; the spouse makes them into another; and now, they have tax exempt accounts, each of which has that $2,300 exemption against creditors. This is perfectly legal.

Most retirees do not keep $4,600 laying around outside of an IRA or 401(k) retirement account. The result is that levying on bank accounts may become ineffective for such judgment debtors. With no employment or other source of funds, almost no folks with pensions any more, and the only other financial institution account being a private retirement account, what is left to levy? Cars? Water toys? These are not common among retirees.

On January 1, 2014, the California real property homestead exemption for a senior-citizen couple increased to $325,000. Maybe in a few years, more homes will have that much equity. However, for now, so soon after the tiny recovery in the real estate market, the house is probably going to be “off-limits.” Remember, people underbid at Sheriff’s sales, so even if the house were worth $400,000, it would still have to fetch an opening bid not less than 90% of its fair-market value (“FMV”), i.e. $360,000, at such an auction. Most folks don’t bid at Sheriff’s sales above 70% FMV because it is 10% down (over $5,000) and then ALL-CASH in 10 days. This is not enough time to finance such a purchase at Sheriff’s sale. So, for homesteads, it is practically impossible to get enough of an opening bid to justify the time and expense. More bad news: If you do not get your 90% FMV opening bid (and you can’t convince the court to “let it go” for a lesser amount that was bid, then all of your costs are not recoverable.

More bad news: After January 1, 2014, the debtors can petition the court to avoid your real property lien to the extent that it impairs their now greatly increased exemption (which “jumped” to $325,000 on January 1, 2014.) If they get that order, then you would not be able to get paid anything on your lien until the value of the homestead exceeds $336,000 (e.g., $325,000 exemption + $11,000 mortgage balance.) Who knows if this will be true if they receive their bankruptcy discharge and then voluntarily sell their home. My guess is that it would remain in force as part of their “fresh start.”

If your older judgment debtor owns property, consider recording a property lien because there is a chance that would eventually get you paid something from their probate/estate. (Of course, many elder debtors have deeded their property to their younger relatives to avoid a sale if they need a nursing home or hospice care.)

After your lien is recorded, you could mail them a letter (if it is a consumer-related debt, be aware of FDCPA laws) and ask them if they would consider a payment plan, so you can remove the lien when your judgment is satisfied.

If there is no response to the recorded lien or your letter suggesting a repayment plan, then you could search for their bank account and then attempt to levy it; however often the funds in their account will be exempt from creditor levies. Occasionally, there may be sufficient non-exempt funds in a debtor’s bank account to pay off your judgment.

Usually, bank levies do not fully satisfy judgments, so besides property liens, bank levies, and voluntary payment plans; what else can you do with an older judgment debtor? The answer depends on their situation and assets. A judgment debtor examination might make sense, and will probably help you decide your possible next step, which might be to give up for now; and wait to see if your lien works someday.

Things to consider include your debtor’s health, is there a mortgage on their house, what is the equity situation, is their house insured, how many other judgments do they have against them, their likelihood of going bankrupt, whether they have kids who might help pay the judgment off; and whether they have already, or can get a reverse mortgage on their house. A reverse mortgage can only help a creditor if it provides cash to potentially pay off the judgment.

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