UNRAVELING THE MYSTERIES OF THE POST-JUDGMENT COLLECTION PROCESS IN NORTH CAROLINA

“North Carolina is a debtor-friendly state.”  A prominent North Carolina lawyer shared that sentiment with his newly-minted lawyer-daughter over and over again.  She initially failed to appreciate the import of those words.  After 20+ years of practice, the truth of those words is now abundantly clear.  Understanding the rules governing the post-judgment process can assist individuals in formulating a strategy for the 10-years of the initial judgment and the additional 10-years you may seek.

From the date a judgment is entered and then served upon the defendant(s) by the plaintiff, a clock runs for 30-days.  During that 30-days, no matter what type of judgment was entered, the defendant(s) (hereafter for simplicity’s sake “debtor”) have the opportunity to give notice of appeal to the Court of Appeals (less time if the judgment is from Small Claims court and the appeal is to the District Court).  If the debtor elects to appeal the judgment, plaintiff/creditor is not prohibited from pursuing collection on the judgment.  In order to obtain a stay pending appeal, the debtor must apply to the trial court and if the stay order is entered, post a bond (“adequate security”) with Clerk of Superior Court in the county where the judgment was issued.  If this process is not followed, then even if an appeal is ongoing, the judgment creditor can continue to pursue collection on the judgment.

As soon as a judgment is issued, it is a good idea to transcribe the judgment to any other counties where you know or believe the debtor may own or have assets.  The judgment does not attach to real property in counties other than the county in which the judgment was obtained unless and until it is transcribed.  Thinking in the bankruptcy context, the 90-day preference period applies to the gaining of a secured interest in property, so if you were to obtain a judgment in Wake County on June 1, not transcribe it to Guilford until August 1 and the debtor, who owns real property with ample equity files bankruptcy October 1, the DIP or trustee could move to have the judgment lien stripped from the real property in Guilford County as being a preferential transfer.  Had the transcription occurred in June, the judgment would remain affixed and the judgment creditor would have a secured claim.  It can pay to be prompt.

Transcribing a judgment is as easy as filling out a very simple form in the Clerk’s Office, paying a minimal fee and then the Clerk’s Office will notify the other county which will note the judgment in its records.

The North Carolina Constitution requires that individual (not corporate) debtors be served with a Notice of Right to Claim Exempt Property.  This is a statutory form obtained from the clerk’s office or online from the court system’s website.  To this form is attached another form – a Motion to Claim Exempt Property.  These documents must be served upon the debtor either by certified mail, return receipt requested, or by Sheriff.  If the debtor refuses service, then the documents must be dropped in first class mail, postage prepaid, and sent to the last known address for the debtor.  The debtor then has 20-days in which to file the motion.  The motion is self-explanatory and provides a number of categories of property which may be protected from levy.  If a debtor fails to timely respond, then all the debtor’s assets are subject to levy.  If the debtor responds, the creditor may object to the motion on a number of grounds requesting either proof of valuation of certain assets, or greater specificity as to what is to be protected.

Ultimately, the clerk or a judge will enter an order setting out what assets are protected.

The next step is the issuance of a Writ of Execution by the clerk of court in the county where the judgment was obtained.  Another small fee is involved.  This document is what goes to the Sheriff and gives the Sheriff the right and power to seize and sell assets.  Every Sheriff’s Department has its own policies and procedures for handling a Writ of Execution, but the general practice seems to be to get it in from the clerk or creditor.  Note that if the Sheriff’s service fee is attached the clerk will forward the issued Writ directly to the Sheriff’s Department, or the creditor or creditor’s counsel can retrieve the issued Writ and deliver it to the Sheriff with the service fee.  In any event, once the Sheriff has the Writ of Execution, it is assigned to a deputy.  The deputy will usually send a letter to the debtor with a copy of the Writ and demand payment or at least contact from the debtor.  The deputy will usually wait some period of time, then go out and visit the debtor.  The “visit” usually involves either a face-to-face meeting if the debtor is home or the deputy will leave a card and another copy of the Writ on the door.  While at the residence, the deputy will also take visual stock of what assets are readily apparent including cars, trucks, ATVs, boats, etc.  The deputy may check DMV records and tax records before the visit or may wait until after to check license plates against ownership records.  If the debtor communicates with the deputy or if the deputy spots potential assets, then the deputy will contact the party listed on the Writ (creditor or creditor’s counsel) and report what was found or any offer for a payment or payment plan.  If nothing is located, the deputy may keep hunting or may simply return the Writ as unsatisfied.  The “unsatisfied” report is a beginning, not an end…

Supplemental Proceedings Article