Collections
A common misconception about litigation is the notion that a plaintiff wins a lawsuit for damages and walks out of trial with a check in their pocket. It may be that simple, if the defendant has the money and is willing to pay. However, it frequently is not, because the defendant either cannot pay, or has their money tied up in assets they do not want to liquidate (real property, stocks, and the like), or the defendant is simply stubborn and refuses to pay unless you make them.
If, for whatever reason, the defendant does not pay the judgment when do, recovering money for the plaintiff can be quite complicated. Below is a very high-level summary of the options available to a plaintiff collecting on a judgment, and some of the potential barriers to doing so.
Perhaps the simplest means of recovering damages is a procedure called “garnishment,” where the plaintiff garnishes money of the defendant’s held by a third party such as a bank or employer. See Chapter 6.27 RCW. By doing so, money in the account up to the value of the judgment can be set aside to pay the plaintiff. The defendant’s wages can also be garnished on an ongoing basis by applying the garnishment procedure against an employer: essentially the plaintiff takes some or all of the defendant’s paycheck as the money is earned. See RCW 6.27.010(1). However, after the plaintiff garnishes defendant’s money, the defendant then has an opportunity to challenge garnishment of his account and/or wages (more on this later). If the defendant does so, the plaintiff has to spend yet more attorney fees to prove that garnishment is appropriate before the money is finally turned over to the plaintiff.
If the plaintiff wants to recover some or all of the judgment from real property (land or a house) owned by the defendant, this gets even more complicated. The plaintiff can place a lien on the real property, essentially preserving the plaintiff’s place in line to recover proceeds from the sale if the property is ever sold. However, there will commonly be others already in line before the plaintiff. The most familiar example will be if the defendant has a mortgage on a house or other real property. The mortgagee is typically first in line to recover the proceeds from the sale. The defendant may have used the real property as collateral for other loans, or there may have been other plaintiffs who already placed a lien on the property. They will also have priority to recover proceeds from the sale. The proceeds are distributed on a “first-come first-served” basis. If the proceeds from sale of the property are depleted by paying a mortgagee or other creditor with higher priority, the plaintiff walks away with nothing, even though he spent money obtaining a lien on the property.
This is further complicated because having a lien simply gives you the right to recover proceeds from the sale of the property when it is sold. The property could be sold on the day the plaintiff puts a lien on it, or ten years later, or never. The plaintiff can speed this process up by foreclosing on the property. However, this is yet another expensive litigation process that the defendant may oppose.
If the plaintiff wants to recover personal property, the plaintiff generally has to have a writ of execution issued to the sheriff, who will do the actual collecting. The sheriff will usually require the plaintiff to purchase an indemnity bond for twice the value of the personal property to be collected. See RCW 36.28.050. This is to pay for any lawsuits against the sheriff if seizing the personal property turns out to have been improper.
Other factors can complicate matters even further. Collecting assets located in another state adds a layer of complication to the process. Locating and collecting assets located in another country is significantly more complicated and expensive, and in some countries it is virtually impossible.
Furthermore, some of the defendant’s assets may be exempt from the collections process. Generally speaking, $125,000 of the value of residential property is exempt from collections under the homestead exemption. Chapter 6.13 RCW.
Very generally speaking, significant amounts of the defendant’s tangible personal property may be exempt from collection, including tens of thousands of dollars in furs, jewelry, ornaments, books and electronic media, household goods, appliances and furniture, home and yard equipment, and motor vehicles, among other things. See RCW 6.15.010. And other miscellaneous statutory protections may apply (militia uniforms and equipment, RCW 38.40.080, and property held in trust, RCW 6.32.250, as just a few examples).
A certain amount of a defendant’s earnings are exempt from garnishment. RCW 6.27.150. There are many other statutory exemptions that may apply. See, e.g., RCW 50.40.020 (unemployment compensation), RCW 74.08.210 (public assistance benefits), RCW 48.18.410 (many life insurance policies).
Unsurprisingly, the process of collecting on a judgment can get quite expensive. And the default rule for collections is the same as the rule for litigation: each side is responsible for their own attorney fees, regardless of who prevails. Even if an exception applies and the plaintiff is entitled to attorney fees for collections, the plaintiff has to collect those attorney fees in the same manner that the plaintiff collected the judgment itself. It is a very real possibility that the plaintiff will go through all of this effort and not end up with enough money to pay all of the judgment and attorney fees incurred, either because the defendant doesn’t have the money, or it is too well hidden.
In short, winning in litigation is only half the battle. If the defendant does not have a lot of money, or it is well hidden, the plaintiff can end up with a pyrrhic victory with nothing but litigation debt to show for it.