Enforcing Money Judgments
I. Introduction to Debt Collection & Bankruptcy
a. Property interests are created and defined by state law and the contracts entered into between the parties
b. The law in this area rewards speed: “first in time is first in right”
i. South Carolina Recording Statute: S.C. Code Ann. § 30-7-10 – “all deeds…, all mortgages… or other liens on real property created by law or by agreement of the parties… are valid so as to affect the rights of the subsequent creditors… only from the day and hour when they are recorded….”
ii.The date a creditor acquires a lien fixes the creditor’s priority status to the debtor’s property against competing third party claimants.
II. State Law Collection Processes
a. When a creditor pursues collection through the state court system, the first step is to establish in court that a debt is owed. If successful, the creditor will obtain a judgment from the state court.
b. Execution on Judgment Procedure:
i. SCRCP 69: “Process to enforce a judgment for the payment of money shall be a writ of execution, unless the court directs otherwise.”
1. The Writ of Execution is issued: the writ orders the sheriff to look for non-exempt property of the judgment debtor, to seize it, to sell it, and to pay the proceeds to the judgment creditor, until the judgment is fully paid.
2. The Writ of Execution is then delivered to the sheriff. The sheriff goes looking for the debtor’s non-exempt personal property and seizes any property he can find (i.e., “levies upon” the property).
a. The writ has a limited life.
b. If no property is found, the sheriff makes a “nulla bona” return
c. To enhance the chances of successful levy, the judgment creditor may conduct post judgment discovery to try to locate assets of the debtor subject to execution. In SC, this process is called “supplemental proceedings.”
3. Once the sheriff has levied upon a specific piece of debtor’s property, the judgment creditor becomes a judicial lien creditor as to that property. After levy, the sheriff will advertise the property for public sale and sell it to the highest bidder. The sheriff distributes the proceeds to the creditor until the creditor is paid in full. If the proceeds are insufficient to pay the judgment in full, then the sheriff will be commanded to look for more property to seize and the process starts over.
c. Garnishment: allows a judgment creditor to capture property of the debtor in the hands of a third party (e.g., bank account or wages). Prohibited in SC – except when money is owed to government, when money is owed for child support and when a garnishment order was entered in another state while the debtor was a resident there and the debtor later moves to SC.
d. Judgment Liens:
i. In South Carolina, recording a judgment in a county in which the debtor owns real property creates a judicial lien on that property. See S.C. Code Ann. § 15-35-810: Final judgments and decrees entered in any court of record in this State…, or in any circuit or district court of the United States within this State…, shall constitute a lien upon the real estate of the judgment debtor situate in any county in this State in which the judgment… is entered… and duly indexed, the lien to begin from the time of such entry… and to continue for a period of ten years….
ii.A judgment lien attaches to after-acquired property of the debtor and does not terminate if the property is transferred to a third party.
iii. Advantages of Judgment Liens:
1. A judgment lien may attach at an earlier point in time than a lien obtained through execution
2. A judgment lien attaches automatically to the debtor’s after-acquired property, while an execution lien does not.
1. Execution process
2. Direct foreclosure process – judgment creditor files a lawsuit seeking foreclosure and the court orders the sheriff to conduct the foreclosure sale.
v.Enforcement of Judgments in Other States:
1. If debtor has property in another state that has adopted the Uniform Enforcement of Foreign Judgments Act (UEFJA), a judgment creditor can register the o
al”) and it can foreclose on the collateral if debtor fails to pay, sell the collateral and apply the proceeds against the debt. A secured creditor can also require a debtor to maintain insurance on its collateral and may be entitled to adequate protection payments.
1. In bankruptcy, a debtor is required to pay a secured creditor’s allowed claim.
ii.In bankruptcy, an unsecured creditor must share pro rata in the distribution of debtor’s assets and payment may be delayed.
V. Foreclosure – South Carolina
a. Judicial Foreclosure Procedure: An action is commenced by the filing of a Notice of Lis Pendens which effectively cuts off any subsequent lien filings. A Summons and Complaint must be filed within twenty (20) days of the filing of Lis Pendens. In the Complaint, the Plaintiff asks the Court for a money judgment against the debtor and for an Order decreeing that the mortgaged property be sold by the Court with the proceeds applied to Plaintiff’s judgment.
i. The junior liens of all defendants are foreclosed along with the debtor’s interest in the property.
ii.If there is a security agreement covering personal property, that lien may be foreclosed along with the mortgage if the plaintiff chooses to do so.
iii. The foreclosure sale will be subject to all unpaid ad valorem property taxes.
b. Deficiency Judgment: In the Complaint, the Plaintiff may seek a judgment for any deficiency remaining after the sale or may waive such deficiency. If the Plaintiff demands a deficiency judgment, the deficiency may be waived by the Plaintiff up to the date of the foreclosure sale, provided the Plaintiff follows appropriate procedures.