*This page is intended for general information about North Carolina law. It does not, and could not, address every particularity or circumstance, and should not be construed as legal advice or a substitute for consulting with a licensed attorney.
I have a judgment. Can I just wait to get paid?
That would not be wise, for two reasons.
1. You are unlikely to get paid.
A money judgment is just a determination that a person or entity (the “judgment debtor”) is legally liable; it is not an order to pay, and the court will do nothing without being prompted to encourage payment. Most small businesses and individuals against whom judgments are entered are financially stressed and will never voluntarily pay. If you are very lucky, the debtor is required to resolve judgments to maintain a professional license, or owns real estate in the same jurisdiction in which your judgment is entered, and will need to sell that real estate within 10 years. In these unusual cases, you may get paid without lifting a finger. Most of the time, if you do nothing, you will recover nothing.
2. To have a reasonable chance of getting paid, you may need to take further affirmative steps, and time may be of the essence.
For example, if your debtor has publicly transferred his valuable assets, you have a limited time to file a lawsuit to reverse those transfers. Also, if your debtor owns real estate, but it is located in a different county than the court that entered judgment, you have to “transcribe” your judgment to the county where the real estate is located, and it is imperative that you do that before other liens are filed in that county.
I have a judgment, but the debtor has many other creditors, and tells me he is “broke” and “judgment proof.” Is it a waste of money to pursue it?
Not necessarily. Certainly some debtors are truly “judgment proof”: they will never pay voluntarily, and do not have assets that can economically be liquidated involuntarily. A good attorney will advise many prospective clients who hold judgments to stop throwing good money after bad.
However, some debtors will lie about their financial condition, or wrongly believe that a creditor cannot reach assets, because they have been transferred to a relative or a trust, or are titled in a corporate name. Also, many creditors will pay substantial attorneys’ fees to obtain a judgment, but never put meaningful effort into collecting it. An active, aggressive creditor can in the right circumstance collect from a debtor who has millions of dollars in debts to other creditors, including the IRS. Also, there are attorneys who will pursue judgments on a contingency basis—meaning that you do not pay any fees unless and until you collect money. You may be responsible for costs regardless of whether you collect, so you should insist on and carefully read the written fee agreement.
I have a judgment, but the debtor has filed for bankruptcy. Do I have to forget about it?
Not necessarily. An active and informed creditor can in the right circumstances actually benefit from a bankruptcy filing. The lien of a judgment that is attached to real estate generally survives bankruptcy, and a judgment that arises from fraud or similar conduct can survive bankruptcy, if a timely lawsuit is filed. There are, however, strict rules and deadlines in bankruptcy, and you need a competent attorney to guide you.
How long does my judgment last?
A North Carolina judgment remains enforceable in North Carolina for ten (10) years from the date it was stamped “filed” by the Court. At any time prior to the expiration of the judgment, the judgment creditor may sue for a new judgment – a process sometimes called “renewal.” A “renewed” judgment is valid for an additional (10) years. A judgment may be renewed only one (1) time, and the renewal process requires filing a new lawsuit, although the defendant has very limited defenses.
A renewed judgment may not have the same lien priority as the original, and will not attach at all to property the debtor has sold before entry of the second judgment. Therefore, one should always review a judgment several months before it expires, to see if it is attached to any real property (real estate). Under very narrow circumstances, where a judgment creditor has been held up by bankruptcy or a legal exemption claimed by a debtor, a judgment can be enforced past the normal 10-year deadline.
What does it mean if the judgment debtor owns real estate?
The best news you can get as a judgment creditor is that the debtor owns real estate. A money judgment entered and properly indexed by a North Carolina court instantly becomes a lien against any real property owned or later acquired by the judgment debtor in the county in which the judgment was entered. The value of a judgment lien depends on the value of the property and the amount and relative priority of other liens, including deeds of trust, mortgages, state and federal tax liens, unpaid local property taxes, and other judgments. A title search is necessary to determine the nature and priority of existing liens. However, even a junior lien on “underwater” real property can be valuable if the debtors need to use or sell the property.
The tax office/sheriff says there is no real estate to sell. Is that definitive?
No. First, tax records are often inaccurate. Second, in North Carolina, a debtor can own inherited real estate and there be no deed or tax record showing his or her ownership. Third, if a debtor has sold or transferred real estate after your judgment was entered, or close in time to when you filed suit, you may be able to reverse the transfer and sell the property.
What does it mean if the judgment debtor owns real estate with a spouse?
A judgment against a married person, not naming his or her spouse, does not attach to real property in North Carolina that the judgment debtor owns jointly with his or her spouse as marital property. However, the same judgment will attach as a lien if, while the judgment survives, the judgment debtor divorces or is widowed. Do not assume that property is marital property just because there are two names on the tax record.
What if the debtors owns property outside of the county?
For a judgment to become a lien on real property in a county other than the county in which it was entered, or to otherwise be enforceable in such a county, it must be docketed with the court in that county – a process called “transcription.” Transcription is quick, simple, and inexpensive.
In order for a North Carolina judgment to be enforceable in another state, it must be properly registered according to the laws of that state – a process called “domestication.” The requirements, expense, and effect of domestication vary by state.
A judgment entered in federal court does not immediately attach as a lien on real property in North Carolina, but must be domesticated to North Carolina state court.
We recommend that creditors holding a new judgment quickly review all information at their disposal concerning the assets of the debtor (including any credit applications submitted by the debtor) and determine if the judgment needs to be filed in another jurisdiction.
Can I sell a debtor’s boat or car?
Often, yes, but the item in question needs to be titled in the name of the judgment debtor, and there needs to be enough value over existing liens (“equity”) to make the process worthwhile. A judgment creditor can perfect an interest in the debtor’s personal property through the arcane and cumbersome “execution” process, which is handed by the Sheriff’s office.
If you know that a judgment debtor has valuable personal property – an expensive car or boat, an airplane, a bank or investment account, or stock in a corporation, you should act quickly. A judgment is not a lien against personal property until a Court has issued a “Writ of Execution” to a Sheriff, and the Sheriff is has “levied” on that property – that is, taken the property to apply toward the judgment. A court cannot issue a Writ of Execution against an individual resident of North Carolina until the debtor has had the opportunity to claim certain exemptions provided for by North Carolina law. Unless and until personal property is under levy, a judgment debtor can ordinarily sell it to a good-faith purchaser, and, unlike with real property, neither the seller nor the buyer has to worry about the effect of judgment liens.
Most Sheriff’s offices do not have adequate resources to devote to execution and will not discover assets that are not shown on the local tax records. Sophisticated debtors will often use leased vehicles, or title vehicle they own in the name a company or trust. Therefore, successfully pursuing these types of assets normally requires substantial assistance from an attorney.
Can I garnish wages?
No. Wage garnishment is not available in North Carolina. However, earned income that is sitting in an account can sometimes be reached by a creditor. The same is true of bonuses and commissions that are owed but not yet paid.
What is a fraudulent or voidable transfer?
Debtors who are being pursued by creditors, or who perceive that they may not be able to pay all of their debts, may take steps to conceal or dispose of assets, including transferring property into trusts, to family members, or to business entities controlled by themselves or family members. These conveyances are often reversible through a lawsuit, and are therefore called “voidable” transfers. However, suit must generally be filed within four (4) years of the conveyance. Thorough asset research will examine not just the property the debtor currently owns, but also property the debtor has transferred within at least the previous four (4) years.
Note that to be voidable, a transfer does not have to be “fraudulent,” in the sense of having some criminal purpose, or even having the specific purpose of avoiding creditors. It is often enough to show that the debtor made a transfer while insolvent, or was made insolvent by a transfer, and without receiving fair consideration (something equivalent in exchange). Many gainfully employed people and operating businesses are “insolvent,” which simply means their total debts exceed the cumulative value of their assets.
I obtained judgments against others, but then later had to file for bankruptcy myself. Can I still collect those judgments?
Maybe so, and maybe not. Someone who files for bankruptcy and discharges debts generally has to disclose to the court all assets. A judgment is an asset, and has to be disclosed to the Court if the creditor files bankruptcy. If the judgment was disclosed in the bankruptcy, and the trustee closed the case without collecting on the judgment, the original judgment creditor can still collect it. However, a judgment that was not disclosed in the bankruptcy may not be collectible.