Debtors may be brought into Court to testify about their assets and their debts, to allow creditors to enforce against such assets. In most large judgment collection cases, multiple Debtors exams are a must- and used properly, they are a very potent judgment collection tool. Examinations occur under C.C.P. 708.110, et seq. A few things to note about Debtor Exams:
Personal service on the Debtor is required; no other method of service is valid.
Unlike most other papers, which can be served by mail or to debtor attorney (Motions, etc.) or by substituted service (e.g. secretary, front desk person at place of business, spouse who answers the door at debtor home)- Examination orders must be personally served. No exceptions; no ifs, ands, or buts.* (C.C.P.708.110(d) Also see C.C.P. 415.10 et seq re personal service)
Failure of Debtor to show up to Examination can result in issuance of warrant for Debtors Arrest.
Service creates lien on all debtors personal property. This lien will generally defeat the claims of later creditors or others who take possession of debtor property after the lien comes down (See Third Party Claims)
Once assets are identified, Debtor can be ordered to turn the assets over, right then an there at the examination (if you can convince a judge to do it)
Once assets are identified at a Debtor Exam, Pursuant to C.C.P. 708.205, the Court may order assets of debtor to be “applied to satisfaction of a judgment.” This is called a turnover order, and is one of the most oft talked about and satisfying parts of judgment enforcement. In practical terms, this order essentially is the judge telling the debtor “Hey Debtor, you are ordered to turn over your property (fancy car for example) over to the sheriff, to be auctioned off to pay the creditor.” Failure to do so is a contempt of court and can carry with it fines and jailtime. (See C.C.P. 1209)
Turnover orders create liens on the asset(s) named in the order, and there is nothing in the statute indicating that this lien ever expires. They can also be used to reach assets which creditor could not reach otherwise. (Example, Debtor has bank account in another state with money in it, creditor cannot levy that from CA, but debtor can be ordered to turn the money over) Turnovers are a very potent judgment collection tool.
Third parties can be subpoenaed and examined in Debtors Exam Proceedings
Pursuant to C.C.P. 708.120, third parties who either owe money (over $250) to debtor, or hold over $250 worth of property of debtor, can be brought into court on their own examination. These third parties can be subject to arrest warrants also, as well as be ordered to turnover any property they are holding which is the debtors property.
Third parties who do NOT owe debtor money and do NOT hold debtor property can also be subpoenaed into examinations, strictly in the capacity of a person who is a witness with knowledge of debtor finances.
(See Cases below)
Documents can also be subpoenaed to Debtors Exam
Pursuant to C.C.P. 1985, subpoenas can be used to subpoena documents to debtor examinations. Documents should always be subpoenaed to examinations. While there is much case law surrounding this, one of the most important things to know here is that, the scope of financial discovery is very broad post judgment. The cases say that creditor can leave “no stone unturned” in the search for Debtor assets (Young v. Keele).
Debtors Examination Case Law (Updated periodically)
-Turnover order can be issued on the spot at the examination without a motion; and doing so is not a violation of due process (Imperial Bank v Pim Electric)
-Debtors Examination Lien can reach property of Debtor even if it is in the hands of third parties, or even if the property isn’t in the State of CA (In re Burns)
-Debtors Examination Lien can trump third party rights (e.g. bankruptcy trustee) (Credit Suisse v. First Boston Mtg)
-Third parties can be brought in to testify in exam proceedings, solely based on the fact that they may have knowledge of Debtor assets (Shrewsbury Mgmt v. Sup Ct.)
-Scope of Debtor Examination can include digging into possible alter egos of debtor (thus allowing discovery into third party related persons or entities) (Yolanda’s Inc. v Kahl)
A simple Debtors exam of a debtor is a pretty easy thing to do; but once debtors get elusive, third parties need to be brought in, and turnovers get involved, proceedings become more involved. Oftentimes, the Courts are not used to them/have very little experience with them.
Collection Attorneys in Los Angeles since 2011, The Evanns Collection Law Firm has been enforcing judgments for years, and we have probably done over a hundred examinations. We know the ins and outs of this judgment collection mechanism. We would love to hear about your judgment enforcement matter. Call at 213-292-6888. Phone calls are always free.