A person or business that is owed a debt is a “creditor.” A person or business that owes a debt is a “debtor.” Most debtors pay their debts on time. Others pay when the creditor makes a demand for payment. This page explains the options available to creditors when a debtor ignores a creditor’s demand for payment.
A creditor holding a mortgage, land contract, or other lien may collect from a debtor by seizing the property subject to the lien, selling that property, and applying the proceeds from the sale to the debt. Some creditors may have other rights, such as the right to “setoff” a debt owed by the creditor to the debtor against a debt owed by the debtor to the creditor.
Lawsuit. For most creditors, however, collecting a past due debt begins by filing a lawsuit. In Wisconsin a claim to collect a debt in the amount of $10,000 or less is filed in small claims court. Small claims court fees are lower, and small claims court procedures simpler, than those in civil court.
Often, the debtor does not contest the lawsuit. If the debtor does dispute the debt then, unless the case is resolved by agreement or a legal decision by the judge, the issues will be determined at a trial. Ultimately, if the creditor can prove that the debtor owes the debt then the judge will give the creditor a “judgment.”
Creditors have four primary tools for collecting a judgment against a debtor:
Levy & execution. A judgment creditor may ask the county sheriff to seize debtor property, sell the seized property, and use the proceeds to pay the creditor’s judgment. However, the law allows an individual debtor to protect certain exempt property from seizure by the sheriff. Often the debtor has no non-exempt property, and the sheriff returns from the levy without any debtor property to sell. For this reason levy & execution is best used when the creditor knows the debtor has valuable non-exempt property that the sheriff can seize. (For an entertaining movie in which levy and execution plays a pivotal role, see It Happened To Jane.)
Garnishment. A judgment creditor may ask a person or business that is indebted to the judgment debtor to pay the creditor instead of the debtor. The most common garnishment target is wages, but debtor bank accounts are also frequently garnished. Exemptions may reduce or eliminate the creditor’s recovery. For example, Wisconsin law exempts 80% of net wages and does not allow a garnishment that would reduce the debtor’s earned income below the poverty line.
Receivership. A judgment creditor may ask the court to appoint a receiver to take possession of the debtor’s non-exempt assets for sale, using the sale proceeds to pay the creditor’s judgment. Similar to levy & execution, a receivership is often used when the debtor has valuable accounts receivable or other non-exempt assets a sheriff cannot easily seize.
Judgment lien. Upon payment of a small fee, the clerk of court will “docket” a judgment. A docketed judgment is a lien on real estate owned by the judgment debtor in the county where it is docketed. (A docketed judgment also becomes a matter of public record and appears on the judgment debtor’s credit report.) The judgment lien is effective for ten years, at which point it can be renewed.
The judgment lien attaches to any equity above and beyond mortgages and other pre-existing liens on property owned by the debtor. However, there is a Wisconsin homestead exemption that protects the first $75,000 of equity in a judgment debtor’s home. Once the judgment is docketed the creditor may foreclose the judgment lien. This is an expensive and lengthy process. So, unless it is clear that there is equity from which the judgment will be paid, most creditors simply wait in the hope that they will be paid in the event the debtor sells real estate within the period that the judgment lien is effective.
Contact us for a consultation if you would like assistance in obtaining or collecting a judgment.