LIVONIA BANKRUPTCY ATTORNEY: AN INTRODUCTION TO MICHIGAN JUDGMENT EXECUTION & COLLECTIONS
In Michigan, a creditor who has obtained a civil money judgment against you for credit card or medical debt, the deficiency debt resulting from an auto repossession or mortgage foreclosure, or any other basis can “execute” that judgment in a number of different ways.
For purposes of this article, we will not explore the possibility that the judgment was obtained in error or without proper notice—or your right as a defendant to file a motion for reconsideration or an appeal of that judgment under Michigan State Law.
This article simply discusses what money judgment creditors can do with a judgment—and how the filing of a Chapter 7 or Chapter 13 bankruptcy can stop them.
There are a limited number of things that a creditor can do with a judgment once it has obtained one, but the consequences can be serious.
The most well-known means of executing a civil money judgment in Michigan is garnishment. The most common type of garnishment is the garnishment of wages from one’s paycheck.
What is garnishment?
Garnishment is the seizure of your personal funds from one source or another in order to satisfy or partially satisfy a money judgment. It is a process conducted through the circuit or district court that issued the judgment, with the oversight of that court.
Once a judgment is issued by a Michigan court judge, the creditor can file with the court a Request for Garnishment. This post-filing motion must be noticed upon the defendant, and a response may be filed by the defendant. If a response is filed, the court will schedule a hearing to determine whether the garnishment is appropriate. If no response is filed, the court will allow the garnishment by default.
If the source of funds being garnished are the defendant’s wages, a copy of the signed order of the court allowing the garnishment will be served by the court upon the defendant’s employer. The employer has 30 days to comply with the order.
Up to 25% of each paycheck issued by the employer (including bonus, vacation pay, or other such check issuances) may be garnished. Note that this is a total percentage: if multiple creditors have multiple judgments against a defendant, the first to obtain and serve the notice and order of garnishment will take 25% of the check, while the others must wait until that judgment is satisfied to begin their own wage garnishments.
BANK ACCOUNT GARNISHMENT
Likewise, a bank account, if it is identified by the judgment creditors, can also be garnished up to the judgment amount in order to satisfy the amount owed.
Once the signed order of garnishment is served upon the bank or credit union holding the account, the institution again has 30 days to comply, but the funds will often be frozen immediately and will be inaccessible to the defendant.
Further funds deposited into the account are then in danger of being further garnished, should the balance upon notice of the court be less than is necessary to satisfy the judgment.
STATE TAX REFUND GARNISHMENT
A state tax refund may also be garnished by a judgment creditor, once the approved order of garnishment is served upon the Michigan Department of Treasury by the issuing circuit or district court.
A state tax refund garnishment may plague a defendant’s right to receive refunds to which he or she is entitled for many years as, typically, for most individuals, a state tax refund is not an enormous amount of money.
Obtaining an order of garnishment of a state tax refund has, in some circumstances, been found by the Eastern District of Michigan Federal Bankruptcy Court to constitute the perfection of a pre-bankruptcy lien which can complicate your Michigan bankruptcy attorney’s ability to recover garnished funds after the filing of Chapter 7 or 13 bankruptcy (see below for more on this).
Note that recent Bankruptcy Court case-law may mitigate this issue, but, if you are considering filing a Chapter 7 or 13 bankruptcy to stop the garnishment of your tax refund, you should consult with The Hilla Law Firm, PLLC immediately upon learning of the potential garnishment.
Timing is everything with regard to state tax refund garnishment.
The seizure of personal property (which includes automobiles and other vehicles) is another manner of money judgment execution in Michigan.
As with garnishment, in order to seize property, the creditor must file a Notice of Intent to Seize Property with the circuit or district court, with the same notice and opportunity to respond as in the garnishment process. The creditor must know where the defendant lives and what property he or she has and must provide information to the court to that effect.
Once the signed order allowing the property seizure is obtained by the creditor, it is executed by a court officer registered with the court to undertake that task.
Vehicles that are owned free and clear may be seized (although, recently, some creditors have also been seizing vehicles with liens on them).
Personal property may be seized. This would include, generally, anything in your home that is not affixed to the real estate.
Once the property is seized by the court officer, it can then be auctioned off to satisfy the judgment.
Little is more terrifying than a knock at the door from a court officer announcing that he or she is there to take away everything in your home.
The final means by which a money judgment can be executed in Michigan is the perfection of a judgment lien upon real estate. It encumbers the property, which cannot then be sold without the satisfaction of the judgment from the sales proceeds.
The judgment lien may be recorded with the defendant’s county register of deeds 22 days or more after the issuance of the judgment, so long as the defendant has not appeal or moved to set aside or reconsider the judgment.
A judgment lien cannot be foreclosed upon as a mortgage lien can. However, it can encumber property purchased or obtained by the defendant after the date on which the judgment is issued.
Thus, it may not be a useful mechanism for a creditor on the date of issuance of the judgment if the defendant does not own any real estate—but it may come into use at some later date if real property is later purchased.
IS ANYONE REALLY “JUDGMENT PROOF?”
Given that there are thus a limited number of means by which a creditor can executed a judgment, it is a common belief by many against whom money judgments have been issued that they are “judgment-proof.”
This is usually a misconception.
Unless you are an elderly person earning only Social Security income (which is not subject to garnishment) and residing in a rental apartment with few to no personal assets and no real estate, there is going to be something that you have that a creditor can take from you with a Michigan money judgment.
Even if that description paints an accurate picture of you now, it is important to bear in mind that a judgment in Michigan is executable for 10 years—and renewable for another 10 years after that.
The fact that Michigan’s statute of limitations for breach of contract and other claims commonly underpinning a suit for money damages is only 6 years is not relevant once the judgment is issued by the court.
A court-ordered money judgment can haunt you for most of your natural life.
LIVONIA BANKRUPTCY ATTORNEY: STOPPING JUDGMENT EXECUTION WITH CHAPTER 7 AND CHAPTER 13 BANKRUPTCY
The good news is that the filing of a Chapter 7 or Chapter 13 bankruptcy will stop the execution of a civil money judgment even after the judgment is issued.
The filing of a bankruptcy proceeding triggers an injunction under Federal law known as the “Automatic Stay Against Collections.”
The “automatic stay” requires that creditors cease and desist all collections activity upon the filing of a bankruptcy—and it preempts (or trumps) Michigan state law entirely.
Further, an experienced bankruptcy attorney can, in many cases, require that a garnishing creditor return funds that they have garnished from you within the 90 days prior to the filing of the bankruptcy case.
An experienced bankruptcy attorney can also “avoid” or remove a judgment lien in a Chapter 7 or Chapter 13 bankruptcy case.
MICHIGAN MONEY JUDGMENTS AND BANKRUPTCY: THE BOTTOM LINE
The bottom line is that, if you are being sued or have already been sued and have had a money judgment issued against you, it is not too late to stop any of these creditor execution methods described above
The Hilla Law Firm, PLLC offers free consultations for those interested in the bankruptcy process and is experienced and aggressive when it comes to creditor collections activity.